Guidelines for Input Tax Credit (ITC)
1. Input Tax Credit is very vital to the concept of Value Added Tax system. Input tax is the tax that a taxable person has paid on his business purchases.
2. Section 13 of the Punjab VAT Act, 2005 deals with Input Tax Credit. The system of credit on input tax paid is tax-based. It is a major check on leakage of tax.
3. Input Tax includes tax paid on :
(i) Purchases of raw material; (ii) Goods purchased for resale; (iii) Purchase of capital goods such as machinery or equipment for use in business; (iv) Tools and accessories used in business; and (v) Packing material for resale and use in manufacture.
4. Input Tax Credit is available only on purchases made from taxable persons holding VAT registration number, in the State.
5. Input Tax Credit can be claimed only by a taxable person holding VAT registration number on the basis of ORIGINAL VAT INVOICE received from seller.
6. Taxable persons can not claim Input Tax Credit for the following goods unless they are in the business of dealing in these goods:
i) Automobiles including commercial vehicles, three wheelers and two wheelers and spare parts thereof;
ii) Food, beverages and tobacco products;
iii) Petroleum products;
iv) Goods used for personal consumption or gifts;
v) Goods used in manufacture, processing and packing of tax free goods;
vi) Office equipment and building material;
vii) Air-conditioning units except where air-conditioning is essential in the manufacturing process of taxable goods;
viii) Weigh bridge except when installed inside the manufacturing premises for use in the process of manufacturing;
ix) Goods used in manufacture, processing or packing of tax free goods;
x) Goods used in generation and distribution of electrical energy; and
xi) Goods which remain unsold at the time of closure of business.
7. If a taxable person is making taxable and tax free sales, he would be entitled to claim input tax proportionate to his taxable sales using the following formula:
(A x B) / C
A : Total amount of input tax for the period.
B : Total value of taxable sales for a period including zero rated sales, excluding VAT.
C : Total value of sales including tax free sales, excluding VAT.
8. A taxable person can claim input tax credit with return for each tax period. If the claim for input tax credit exceeds the amount of output tax in that return, input tax credit shall be carried forward to next return period.
9. The net tax payable by a VAT dealer claiming input tax credit shall be:
Output tax - input tax = net tax.
Input tax shall include the input tax credit carried forward from previous return period.
10. Input tax credit is non-transferable i.e. it cannot be transferred from one taxable person to another.
11. Section 14 of the Punjab VAT Act,2005 provides for input tax credit on the tax paid under sec. 5(1-A) and on Schedule D goods under the PGST Act, 1948 during the past one year. Taxable person shall be entitled to claim Input Tax Credit on the goods in hand on the appointed day if the purchases were made within twelve months prior to the appointed day and the goods have suffered tax under the PGST Act, 1948. However, all taxable persons having stock of tax paid goods on the appointed day shall have to get their stocks authenticated, by submitting details in prescribed performa upto 30.04.2005, and getting the same verified from the concerned Assessing Authority and produce/secure documentary evidence of tax paid on such stock.
12. ITC is not available for exempted units. Instead an exempted unit is entitled to refund of tax paid or payable by it on purchases made from a taxable person with in the State, for use in manufacturing, processing or packing of taxable goods. This refund is available only if the dealer having Exemption has filed correct returns as per provision of the rules of 1991. The unit shall make an application for refund