What is input credit?

A credit for inputs allows you to deduct the tax you have previously paid on inputs when paying output tax. Consider that, as a factory, you must pay Rs 450 in taxes on your output (FINAL PRODUCT). There is a 300 rupee tax paid on purchases (input). With just a Rs 150 tax deposit, you can claim an INPUT CREDIT of Rs 300.

Input Credit in GST

When you fall under the GST Act’s coverage, you can access the Input Credit Mechanism. That implies you can claim input credit for the tax you paid on your purchases if you are a registered GST operator, manufacturer, supplier, agent, aggregator, or any of the aforementioned individuals.

Essential Steps for Input Tax Credit Claim & Tax Credit Reversal

In order to comply with the fiscal year 2022–2023 deadline and maintain compliance with GST requirements pertaining to Input Tax Credit (ITC), taxpayers had to expeditiously execute the subsequent measures:

Effectively Review GST Invoices and Any Debit Notes

• Check and confirm all applicable debit notes and invoices for products and services.
• Ascertain the Input Tax Credit (ITC) eligibility by verifying that the invoices meet the necessary GST requirements.

Precise Alignment of GST Returns with Accounting Records

• Compare the ITC claimed in the GSTR 3B return with the ITC listed in the business’s accounting records.
• Ensure accuracy and adherence to GST regulations by conducting a comprehensive reconciliation process.

Effective Maintenance of Records

• Maintain the appropriate records for the qualified input tax credit claims in addition to the legitimate invoices and accompanying paperwork.
• When conducting audits or assessments, the ITC must provide the necessary documentation to support its claims.

Timely Submission of GST Returns

• To ensure compliance, make sure that all outstanding GST returns—both regular and annual—are submitted as soon as possible.
• Input Tax Credit claims must be secured by timely filing in order to avoid late submission fines.

Swift Resolution of Any Issues

• Immediately correct any inconsistencies or mistakes discovered in previous submissions to ensure accuracy and compliance with rules.
• Optimize qualified Input Tax Credit claims and reverse any non-qualifying claims to ensure accurate and compliant submissions.

Establish Communication with Suppliers

• Create channels of communication with suppliers to quickly address any concerns regarding missing or inaccurate invoices.
• To maintain smooth transaction procedures and support Input Tax Credit claims, obtain the necessary documentation from suppliers.

Review GSTR-2B Data

• Check the GSTR-2B information and make sure it matches the purchase register.
• To avoid problems with ITC claims, resolve any issues that arise between GSTR-2B and the purchase register.

Read More: Approaching Deadline for Accurate Declaration of Input Tax Credit in GST

Items Not Eligible for GST Input Tax Credit Claims

• Services relevant to the upkeep, insurance, and repair of motor vehicles
• specific categories—such as food, drinks, catering, medical services, beauty salons, and cosmetic surgery—unless they are a component of a composite supply
• Clubs and memberships at health and fitness centers
• Rent-a-cab, health and life insurance, unless required by law or included in a package deal
• leasing or rental of automobiles, boats, or airplanes, unless otherwise specified
• Benefits of travel for employees on holidays
• Contract labor services for building real estate
• Personal use products and services
• Products and services covered by the GST composition plan
• Transactions of taxable non-resident individuals
• Items misplaced, pilfered, damaged, or discarded carelessly
• If the tax is paid through fraud or deliberate misstatements, etc., there is no ITC available.

According to the State Goods and Services department, November 30 is the deadline for claiming input tax credit, providing accurate information on ineligible input tax credit, and reversing it for the fiscal year 2022–2023.

The GSTR-3B return filing for the month of October 2023, with a November 20 deadline, is the method that needs to be finished. The entire input tax credit for 2022–2023 that is indicated in the GSTR-2B statements should be utilized by all taxpayers submitting returns using the GSTR-3B form. They should also make sure that any ineligible input tax credit is reversed using the 4B (1) table on the GSTR-3B form. According to the Commissioner of State GST, all qualified taxpayers should take great care in this regard since the accurate declaration of the Integrated GST (IGST) input tax credit is essential for the State’s tax collections.

Before filing their returns for October, taxpayers who entered the input tax credit details in error in the 4B(2) table rather than the 4B(1) table in their prior returns should get in touch with the Taxpayer Service Division at the Office of the Joint Commissioner, Taxpayer Circle, or the district-level GST Intelligence wing.

What is input credit?

A credit for inputs allows you to deduct the tax you have previously paid on inputs when paying output tax. Consider that, as a factory, you must pay Rs 450 in taxes on your output (FINAL PRODUCT). There is a 300 rupee tax paid on purchases (input). With just a Rs 150 tax deposit, you can claim an INPUT CREDIT of Rs 300.

Input Credit in GST

When you fall under the GST Act’s coverage, you can access the Input Credit Mechanism. That implies you can claim input credit for the tax you paid on your purchases if you are a registered GST operator, manufacturer, supplier, agent, aggregator, or any of the aforementioned individuals.

How does one file a GST input credit claim?

• A tax invoice (of purchase) or debit note from a registered dealer is required.
• You ought to have gotten the products or services.

Note: Upon receipt of the final lot or installment, credit will be granted against the tax invoice in cases where items are received in lots or installments. Note: If the recipient has already accessed input credit based on the invoice and does not pay the value of the service or tax thereon within three months of the invoice’s issue, the said credit will be added to his output tax liability along with interest.

• The provider has deposited or paid the government the tax that was assessed on your purchases, either in cash or by claiming input credit.
• The vendor has submitted GST returns.
• The invoice is seen in the recipient’s or buyer’s GSTR-2B when the supplier uploads it to their GSTR-1.

The fact that input credit is only permitted if your supplier has deposited the tax he has collected from you may be the most revolutionary innovation of the GST. Therefore, before you can claim any input credit, it must be matched and validated. As a result, all of your suppliers must also be GST compliant in order for you to be able to claim input credit on purchases.

Further information on input credit is as follows:

• It is feasible for input credit to remain unclaimed. because the tax on acquisitions is more than the tax on sales. You are eligible to request a refund or carry-over in such a situation.

If the tax on inputs > tax on output –> carry forward input tax or claim refund If a tax on output > tax on inputs –> pay balance No interest is paid on input tax balance by the government

• Purchase invoices older than a year cannot be eligible for input tax credit unless certain conditions are met, as stated in Section 18(1). The date of the tax invoice is used to compute the period.
• Input credit is available for both goods and services since GST is applied to both (except from those that are on the exempted/negative list).

Read More: Earning Extra Income through Moonlighting: Understanding Income Tax Regulations

• Capital goods are eligible for input tax credits.
• Products and services purchased for personal use are exempt from input tax.
• After the GST return for the September after the end of the financial year to which such invoice relates or the filing of the relevant annual return, whichever is earlier, no input tax credit will be permitted.

In the context of GST, OIDAR stands for Online Information Data Base Access and Retrieval Services; these services have distinct tax implications than other kinds of transactions. It only applies to the provision of services, and the primary distinction is that while the beneficiary is located in India, the service provider is not. These services, as their name implies, are supplied by the provider of services via the internet, and the recipient downloads them in India.

India has decided to end the GST exemption for foreign OIDAR service providers effective October 1, 2023. Due to this modification, businesses providing services to the government and individuals will have to pay an integrated GST of up to 18%, including Facebook, Google, and other edtech platforms. Foreign enterprises that provided OIDAR services to the Indian government, state agencies, or people for non-business purposes were previously exempt from this requirement. This modification, however, requires that all OIDAR services be taxable, regardless of how they are used.

What are OIDAR services?

OIDAR is defined as services whose delivery is mediated by information technology through the internet or an electronic network and whose nature renders their provision fundamentally automated needing minimal human participation (Section 2(17) of the Integrated Goods and Services (IGST) Act, 2017).

These comprise digital services including online advertising, cloud computing, online digital content distribution, etc. “Minimum human intervention” was once part of the OIDAR definition.

The Finance Act 2023, on the other hand, changed the definition and broadened the taxation scope for OIDAR services, removing the necessity for “minimal human intervention” in service delivery.

Indicative List of OIDAR Services

Website supply, web-hosting, distance maintenance of programs and equipment:

It covers webpage hosting; remote systems administration; automated, online, and remote program maintenance; online data warehousing, which stores and retrieves specified data electronically; and online on-demand disk space supply.

Supply of software and updating thereof:

It involves accessing or downloading software (such as accounting and procurement programs and antivirus software) along with updates; downloading drivers, which are programs that interface computers with peripheral devices (like printers); installing firewalls and filters on websites automatically online; and using software to prevent banner ads from showing, also known as banner blockers.

Supply of images, text and information, and making available of databases:

It covers the following: using search engines and Internet directories; accessing or downloading desktop themes; downloading or accessing photographic or pictorial images or screensavers; subscribing to online newspapers and journals; the digital content of books and other electronic publications; the provision of advertising space, including banner ads on a website or web page.

Supply of music, films, and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific, and entertainment broadcasts and events:

It involves playing automatically generated online games that rely on the Internet, as well as accessing or downloading movies, music, and games to computers and mobile devices.

Supply of distance teaching:

Virtual classrooms and workbooks that students complete online and have automatically marked without human participation are examples of automated distance learning that depends on the Internet or a similar electronic network to operate.

How are OIDAR services taxed under GST?

The location of the service recipient determines whether or not OIDAR services are subject to GST. According to Section 13 of the IGST Act of 2017, the recipient’s location is where OIDAR services are supplied when the provider or recipient are located outside of India.

Therefore, if any two of the following non-contradictory requirements are met, any recipient of OIDAR services is considered to be in the taxable territory under this Section:

1. The address that the recipient provided online is located in taxable territory.

2. The recipient of services may pay using a credit card, debit card, store value card, charge card, smart card, or any other card that has been issued in the taxable territory.

3. The service recipient’s billing address is located inside the taxable territory.

4. The device that the service recipient uses has an IP address that is within the taxable territory.

5. The bank of the service recipient, where the payment account is kept, is located within the taxable area.

6. The subscriber identity module card used by the service recipient has a country code that corresponds to taxable territory.

7. The fixed land line that the recipient uses to access the service is located inside the taxable territory.

“The Indian government published a circular on September 26, 2023, removing the GST exemption that foreign providers of online information and database access retrieval services (OIDAR) were previously enjoying. Companies like Facebook, Google, and other edtech platforms would be subject to an integrated GST (IGST) of up to 18 percent on services they give to the government and citizens as a result of this move, which takes effect on October 1, 2023.”

“OIDAR services supplied by foreign businesses to the Indian central government, state governments, government agencies, or private citizens for non-commercial reasons were not subject to taxes prior to this most recent modification.”

 

Application of GST to OIDAR services

The recipient’s location affects the taxability of OIDAR services, and GST responsibility is calculated accordingly:

1. In the event that the recipient and the supplier are both located in India, GST will be imposed based on forward charges.

2. GST will be charged if the beneficiary, who is based in India, is registered for GST even though the supplier is outside the taxable area. In addition, the goods and services tax will be paid by reverse charge.

3. GST will be applicable and goods and service tax will be paid on a forward charge basis if the supplier is located outside of India and the recipient resides in the country but is not registered for GST. The supplier based outside of India will pay the tax on advance charge when an unregistered, non-taxable person in India imports the OIDAR services.

4. GST shall not be charged if either the suppliers or the recipients are located outside of India.

5. The export service will not be subject to GST if the supplier resides in India and the recipient is situated outside of the country’s taxable area.

Who will bear the cost of the tax payment?

Recipient under reverse charge:

The service recipient is responsible for paying the GST under this arrangement. Therefore, when the provider of an OIDAR service is based outside of India, all registered business organizations that get OIDAR services in India are obliged to pay GST. The major goal of this is to safeguard domestic service providers.

Supplier/Intermediary:

where a non-registered person or individual receives OIDAR Services from a non-taxable territory.

Intermediary: 

Intermediaries play a crucial role in facilitating the purchase of software, music, and other OIDAR products, even though the products themselves are not held by the portal or app where they are sold.

Procedure for OIDAR service providers to register

OIDAR service providers located in India

Indian-based OIDAR service providers can apply through the GST portal to receive GST Registration through the standard process.

OIDAR service providers located outside India

GST laws must also be followed by all OIDAR service providers that offer their services to Indian citizens even if they are not based in India. Any OIDAR service provider must file GST REG-10 in order to gain GST registration when providing services to a non-taxable online recipient from a location outside of India. An electronically submitted application for GST Registration for OIDAR service providers must include a self-attested copy of the promoters’ valid passport and their tax identity number, PAN, or unique identifying number issued by a foreign government.

At least five days before the start of business in India, the application for GST registration must be filed.

In order to get GST registration, file GST returns, and make GST payments on behalf of the foreign company, foreign corporations may choose a representative in India.

Compliances: deadlines for filing GST returns

The sale of digital services in India is subject to an 18% GST duty under the two scenarios below.

OIDAR service providers located in India

Like any other taxpayer, they have to file GSTR-1, GSTR-2, GSTR-3, and an annual GST return.

 

Read More: Guidance on Validating Transporter ID (TRANSIN) in e-Waybills

 

OIDAR service providers located outside India

On or before the 20th of every month, they must submit Form GSTR-5A. For the purpose of filing GST returns and guaranteeing compliance with GST, they must designate a representative in India.

Form GSTR-5A is a simplified form and the details to be provided in it include:

1. Information about taxable outbound supplies to Indian consumers, including taxable value, rate of tax, place of supply (State or UT), IGST, and cess.

2. Computation of fines, interest, or any other sum.

3. Interest, tax, late fees, and any additional sum that needs to be paid.