GST

ITC Transition Provisions: How Existing ITC can be transitioned Under GST?

There is a lot of confusion in the mind of traders, who are dealing in services or goods about what will happen to the input credit they are eligible for under old laws. Whether it can be carried forward or will it lapse with the implementation of GST.

This article will solve all your queries about this topic. All those taxpayers opting for GST registration or are migrating to GST must know about these ITC Transition provisions under GST.

What is ITC Transition Provision?

The transition provisions are incorporated in GST to allow the existing taxpayers to migrate to GST in a transparent way. 

What is Input Tax Credit?

Every dealer pays tax on his inward supplies and collects tax from his customers on outward supplies. They are eligible to claim the credit of tax paid on inward supplies, this credit is known as Input Tax Credit and dealer’s tax liability towards the government is equal to the balance amount after deducting ITC from tax collected on outward supplies.

Transition of ITC

Chapter XX of CGST Act, 2017^[1] deals with transition provisions under GST, and Section 140 deals with the transition of ITC specifically. It clearly states that all taxpayers registered under GST can claim input credit on eligible taxes and duties. All the provisions relating to taxpayers who were registered under old laws and taxpayers who were not liable to be registered under old laws or taxpayers manufacturing taxable as well as non-taxable supplies are provided under the sub-sections of Section 140. These taxpayers can transfer input credit claimed under any old law to their electronic credit ledger.

For Taxpayers Registered Under Old Laws

Such taxpayers are eligible to receive credit equal to CENVAT credit carried forward in the return furnished by them, for the period ending immediately preceding the appointed date, i.e. 1^st July 2017. However, the following conditions are required to be fulfilled:

• This amount of credit is allowed as ITC under GST laws.
• All the returns filed under old laws in the 6 months preceding the appointed date are furnished by the taxpayer.
• This credit is not related to exempted goods under the GST laws.

Along with the said credit, the taxpayer can also claim any unveiled CENVAT credit in respect of capital goods not carried forward in the return furnished under the existing laws.

For Taxpayers Not Registered Under Old Laws

As per ITC Transition provisions, taxpayers who are registered under GST, who were not required to be registered any old laws, or were dealing in exempted goods can avail credit for eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods. However, the following conditions are required to be fulfilled:

• Such inputs are used for making taxable supplies under GST.
• A taxpayer is eligible to receive ITC.
• A taxpayer is in possession of invoice or other prescribed documents evidencing payment of duty. Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.
• Supplier of services is not eligible for any abatement under GST.

In case if inputs are received on or after 1^st July 2017 and applicable tax or duty on then is paid before such date then following condition is to be satisfied; invoice or any other duty or tax-paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day.

ITC Transition Provision: Procedure

Every registered person under GST, whether they were registered under any old laws or not, are entitled to take credit of input tax under section 140 and shall, within 90days of the appointed day, submit a duly signed declaration electronically in FORM GST TRAN- 1 on the common portal. The amount of Input tax credit they are entitled to should be stated in the same.

This 90 days period can be extended for a further period of 90 days by the Commissioner on the recommendation of the Council.

However, any registered person under GST availing of this scheme and has furnished the details of stock held by him, who is covered under any of the following given criteria, will have to submit a statement in FORM GST TRAN-2 at the end of the 6 consecutive tax periods during which the scheme is in operation.

 A person who is:

• A registered person, who was not liable to be registered under the existing law,
• Who was engaged in the manufacture of exempted goods or provision of exempted services;
• Who was providing works contract service and who was availing abatement;
• A registered importer.

Can also enjoy ITC of inputs in stock.

Percentage to ITC that can be transferred to GST

Information regarding ITC transition is provided in the transition rules issued by the government.

In the case of any person who is registered under any old laws can claim 100% credit if all the specified conditions are fulfilled.

In case of any person who was not registered under any old laws can claim the following percentage of the credit;

• If the taxpayer is in possession of proof of payment of such Excise/ VAT or any other addition duty, 100% of credit can be availed.
• If the taxpayer is not in possession of proof of payment of such Excise/ VAT or any other addition duty, and the goods attract CGST & SGST @ 18% or more, the credit allowed will be 60%. In the case of any other goods, the credit allowed under ITC Transition provisions will be 40% of the said amount.

However, if such goods attract Integrated Tax @18% or more, the credit allowed under ITC Transition provisions will be 30% and 20% respectively.

ITC Transition Provision: Forms to be filed

• FORM GST TRAN-01

Every taxpayer registered under GST who is entitled to claim the credit of input tax should submit a declaration within 90 days in Form GST TRAN-01 from the date of implementation of GST, i.e. 1^st of July. This duly signed form is to be submitted electronically on the GST Common Portal. This form is required to be filed by every taxpayer whether they were registered under the old laws or not. This form requires detailed information from the taxpayer, which will include:

• Registration No. allotted under any of the old Acts.
• An amount of tax credit carried forward.
• Date of filing of last return under previous laws.
• GSTIN no. of the supplier.
• Details of inputs held by the taxpayer, like their HSN codes, quantity, value and taxes paid.
• FORM GST TRAN-02

This form is required to be filed by every person availing new credits, for which they have no invoice or any other document. Pre-conditions to be satisfied for the same are:

• A taxpayer was not registered under any of the previous laws now replaced by GST.
• The taxpayer is not in possession of any invoice or any other document evidencing payment of taxes.
• Access was neither a manufacturer registered under Excise Act nor a supplier of services under Service Tax Laws.
• He had closing stock as on 30^th June 2017.

This scheme can be availed for 6 taxation periods immediately following the implementation of GST. This form is required to be filed at the end of every such year during this period of six years.

Conclusion

To ensure proper implementation of GST in India, smooth transition provisions are prerequisites. It will assure that the ease of doing business is well-maintained. For any additional information regarding GST registration or ITC Transition provisions, please contact Enterslice.

Read our article: Simplified and New GST Returns from April 2020