Input tax Credit

2 min read

News:Government has decided to restrict input tax credit under the goods and services tax to 20% of the eligible amount for an entity if its supplier has not uploaded relevant invoices detailing the payments made.

Facts:

  • There was no such restriction until now as input tax credit was claimed by taxpayers on the basis of self-assessment. 
  • This decision is aimed at curbing the menace of fake invoices and boost cash flow.
  • However, the apprehension is that it will increase the workload for assessees and a higher burden on companies until the full input tax credit can be claimed. 

Additional information:

About Input tax credit:

  • An input may refer to any goods that are used by the businesses in order to create the finished products provided to the end users. 
  • The input tax credit mechanism allows GST registered businesses to receive refunds on GST paid for the purchase of such inputs to prevent the cascading taxation effect.
  • Cascading effect is when there is a tax on tax levied on a product at every step of the sale.The tax is levied on a value which includes tax paid by the previous buyer which makes the end consumer pay tax on already paid tax.