Need for GST ITC Transition Provision

Transition provisions are incorporated under GST to enable existing taxpayers to migrate to GST in a transparent and exact manner.

One of the major concerns for businesses is the availability and eligibility for claiming input tax credit when the current indirect tax regime changes to GST.

To guard these transactions and events, the GST Law Model has certain transition provisions w.r.t. the closing balance of input tax credit with existing taxpayers under the existing indirect tax regime.

Closing Balance of CENVAT Credit

GST provides that a taxable person shall be entitled to take in their electronic credit ledger the amount of CENVAT Credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished under the current tax regime.

The credit of the amount of Value Added Tax and Entry Tax carried forward in the return relating to the period ending with the day immediately preceding the appointed day, will be applicable for returns filed not more than 90 days before the said date, furnished under the current tax regime.

CENVAT Credit can be related to inputs, input services or capital goods. Balance shown in the return furnished under current tax regime will be opening balance in electronic tax ledger under GST to be known as CGST (Central goods and Services Tax) or SGST (State goods and Services Tax). Conditions for availing the Input Tax Credit.

Credit of input tax will be available under GST only on fulfilment of the following conditions:

  1. The CENVAT Credit must qualify as an amount admissible as input tax credit under both the tax regimes
  2. The CENVAT Credit must have been reflected as input credit carried forward in the return filed for the last period under existing law

The amount carried forward in the return filed under current indirect tax regime will be available as opening balance under electronic credit ledger. The balance of CENVAT Credit shown in the books of accounts has no relevance here.

CENVAT Credit on Capital Goods, not carried forward in return

As for capital goods, under the CENVAT Credit Rules, 2004, it is stated that only 50% credit can be availed during the first year. The remaining 50% of credit can be availed in any of the subsequent financial years.

Under GST, a registered taxable person may avail the un-availed credit of CENVAT on capital goods not carried forward in the return filed for the period immediately preceding the appointed date.

For successful implementation of GST throughout India, smooth transition provisions are a prerequisite. This will ensure that the new tax regime scores high among the taxpayers and does not affect the ease of doing business.

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