GST ITC Transition Provision

The GST has incorporated transition provisions to facilitate the migration of existing taxpayers to the new tax system transparently and precisely. One of the major concerns for businesses during this transition is the availability and eligibility to claim input tax credits as the indirect tax regime changes to GST.

The GST Law Model has implemented specific transition provisions regarding the closing balance of input tax credit for existing taxpayers under the previous indirect tax regime to protect these transactions and events. In this article, we will discuss some of these provisions in detail.

Closing Balance of CENVAT Credit

Under the GST, a taxable person is entitled to transfer the closing balance of their CENVAT Credit to their electronic credit ledger from the return filed for the period ending on the day immediately preceding the appointed day under the current tax regime. 

Additionally, the credit of the Value Added Tax and Entry Tax carried forward in the return for the same period could be applied to returns filed within 90 days before the said date under the current tax regime. This CENVAT Credit can be related to inputs, input services or capital goods. The balance shown in the return filed under the current tax regime will become the opening balance in the electronic tax ledger under the GST, which will be known as either CGST (Central Goods and Services Tax) or SGST (State Goods and Services Tax).

What are the Conditions for Availing of ITC?

It is important to keep in mind that input tax credit under the GST will only be available if the following conditions are met:

• The CENVAT Credit should be eligible for input tax credit under both the current and GST tax regimes.
• The CENVAT Credit must have been reported as input credit carried forward in the return filed for the last period under the current tax regime.
• The amount carried forward in the return filed under the current indirect tax regime will be available as the opening balance under the electronic credit ledger. The balance of CENVAT Credit shown in the books of accounts is irrelevant in this regard.

CENVAT on Capital Goods

Regarding capital goods, the CENVAT Credit Rules, 2004, state that only 50% of the credit can be claimed during the first year. The remaining 50% credit can be claimed in any of the subsequent financial years. This provision allows a registered taxable person to claim the un-availed balance of CENVAT Credit in their electronic credit ledger.

However, a registered taxable person cannot claim credit under this provision unless they were also eligible for CENVAT Credit under the previous tax law and GST. Therefore, under the GST, a registered taxable person may claim the un-availed credit of CENVAT on capital goods that were not carried forward in the return filed for the period immediately preceding the appointed date.

Conclusion

In order to ensure the successful implementation of GST across India and maintain the ease of doing business, it is essential to have smooth transition provisions. This will help to establish the new tax regime’s credibility among taxpayers and prevent any negative impacts on businesses.