Availability of Credit in Special Circumstances under GST – Section 18

The GST framework in India provides businesses with input tax credit (ITC) to prevent tax cascading. Section 18 of the CGST Act, 2017, outlines special provisions regarding the availability of ITC in specific circumstances. Let’s explore these provisions and their implications for businesses.

Eligibility for Input Tax Credit (ITC) under Section 18

1. New Registrations (Section 18(1)(a))

A person who applies for GST registration within 30 days of becoming liable for registration can claim ITC on:

• Inputs held in stock

• Inputs contained in semi-finished or finished goods held in stock The ITC is available from the day immediately preceding the date when they become liable to pay tax.

2. Voluntary Registration (Section 18(1)(b))

A person who voluntarily registers under Section 25(3) can claim ITC on:

• Inputs held in stock

• Inputs contained in semi-finished or finished goods held in stock The credit is available from the day immediately preceding the date of grant of registration.

3. Transition from Composition Scheme to Regular Scheme (Section 18(1)(c))

A registered person who ceases to pay tax under the Composition Scheme (Section 10 of the CGST Act) and shifts to the regular scheme can claim ITC on:

• Inputs held in stock

• Inputs in semi-finished or finished goods

• Capital goods (subject to prescribed reductions) The credit applies from the day immediately preceding the transition date.

4. Conversion of Exempt to Taxable Supply (Section 18(1)(d))

If a registered person’s exempt supply becomes taxable, they can claim ITC on:

• Inputs in stock

• Inputs in semi-finished or finished goods

• Capital goods used exclusively for exempt supply (subject to prescribed reductions) The ITC is available from the day immediately preceding the date when the supply becomes taxable.

Time Limit for Claiming ITC (Section 18(2))

A registered person must claim ITC within one year from the date of issue of the tax invoice related to the supply of goods or services.

ITC Transfer in Case of Business Changes (Section 18(3))

When a business undergoes a sale, merger, demerger, amalgamation, lease, or transfer with specific provisions for liability transfer, the unutilized ITC in the electronic credit ledger can be transferred to the new business entity.

Reversal of ITC in Certain Cases (Section 18(4))

If a registered person opts for the Composition Scheme under Section 10 of the CGST Act or if their supply becomes wholly exempt, they must reverse the ITC on:

• Inputs in stock

• Inputs in semi-finished or finished goods

• Capital goods (with prescribed reductions) After this reversal, any remaining ITC in the electronic credit ledger will lapse.

ITC on Supply of Capital Goods or Plant & Machinery (Section 18(6))

When a registered person supplies capital goods or plant & machinery on which ITC was claimed, they must pay the higher of:

• ITC taken on the capital goods (adjusted by prescribed reductions)

• Tax on the transaction value determined under Section 15 of the CGST Act For refractory bricks, moulds, dies, jigs, and fixtures supplied as scrap, tax is payable on the transaction value.

Conclusion

Section 18 of the CGST Act provides clarity on ITC availability in special circumstances, ensuring a smooth transition for businesses undergoing registration, switching tax schemes, or restructuring. Understanding these provisions helps businesses optimize their tax credits and maintain compliance with GST regulations.

For expert assistance on GST registration, ITC claims, and compliance, consult a qualified GST professional today!