What is the procedure to claim input tax credits on stock at the time of registration under GST

First of all, we will discuss the scenarios where input tax credit (ITC) allowed on stock in hand at the time of registration:

Scenario 1: Where registration required where turnover crossed threshold limit or it obligatory to get registered under GST due to other reasons:

Section 18(1)(a) of the CGST Act 2017 provides that “a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act”.

In simple words, it is provided that INPUT TAX CREDITS on STOCK-IN-HAND as on the OPENING OF date on which the person becomes liable to get registration under GST shall be allowed to only those persons who has applied for registration under GST within 30 days from the date on which he becomes liable to get registration under GST. In this case, input tax credits are allowed only for inputs:

• Held in stock
• Contained in semi-finished or finished goods

However, such tax paid on inputs should not be older than twelve months from such date. In other words, tax paying document in respect of such inputs should fall within twelve months prior to the date on which he becomes liable to register under GST.

Input tax credits in respect of Capital goods or other common expenses will not be allowed if paid before such date. If you are looking to register under GST, it is strongly advised to hold major expenses so that major input tax credits could be availed.

Input tax credits means GST tax paid on inputs (purchases). If a person applies for registration within specified period, he will be allowed to set-off GST liability on sale of goods or services or both from the Input Tax Credits paid on his inputs lying in stock as on the date of commencement of liability. In this way, a person can avoid his costs and get profits from products even having low margins. As per Section 2(59) of CGST Act 2017, an input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. In my view, word ‘inputs’ used in Section 18 is just a plural of word ‘INPUT’ and it does not contain ‘INPUT SERVICES’.

So, in case, a person applied for registration after specified period, he will not be allowed to avail input tax credits on his stock in hand on the date of application.

Scenario 2: Where a person voluntarily applied for registration

Section 18(1)(b) of CGST Act, 2017 provides that a person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration.

Where a person applies voluntarily, he will be allowed Input Tax Credits on the stock available at the opening of date of grant of registration.

In this case too, input tax credits are allowed only for inputs:

• Held in stock
• Contained in semi-finished or finished goods

However, such tax paid on inputs should not be older than twelve months from such date. In other words, tax paying document in respect of such inputs should fall within twelve months prior to the date on which he becomes liable to register under GST.

Input tax credits in respect of Capital goods or other common expenses will not be allowed if paid before such date. If you are looking to register under GST, it is strongly advised to hold major expenses so that major input tax credits could be availed.

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Procedure to claim input tax credits in respect of stock in hand as per above said scenarios:

Procedure to claim input tax credits in respect of such stock has been provided under CGST Rules, 2017. Rule 40 specifically deals with this transaction. The detailed procedure is as follows:

1. Person shall compile a form GST ITC-01
2. This form shall be filed electronically within 30 days from the date of becoming eligible to avail input tax credits
3. In case of Scenario 1 discussed above, ITC-01 form should be filed for information in respect of Stock in Hand on the day immediately preceding the date from which he becomes liable to pay tax under GST.
4. In case of Scenario 2 discussed above, ITC-01 form should be filed for information in respect of Stock in Hand on the day immediately preceding the date of the grant of registration
5. Where the total tax credit of CGST, IGST and SGST/UTGST exceeds Rupees two lakh in aggregate, details furnished in Form ITC-01 shall be duly certified by a Chartered Accountant (CA) or a Cost Accountant.

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Important dates as on 05 November 2017 to file FORM ITC-01 

Due date for filing of Form ITC-01 by persons who became eligible to claim ITC as per above during the month of July, August and September 2017 is 30.11.2017. (Refer Notification No. 52/2017 amending Notification No. 44/2017 of CGST Act 2017).

Please note that those who became eligible to claim ITC as per above during the month of October 2017, there is no extension being provided yet. So, it is strongly advised to file this form on or before relevant due date to avail the benefit of ITC.