Scheme of ITC – At a Glance

Given below are the salient features of the scheme of ITC. The scheme has been
discussed in detail in the ensuing pages of this Chapter.
 The scheme is designed to avoid cascading effect of taxes and make GST a
destination-based tax.
 Broadly, ITC is available on all inputs, input services and capital goods used
for purposes of business of a taxable person. The exception is ‘blocked
credit’, where ITC is not available even when these goods or services are used
for purposes of business.
 ITC is used for payment of tax on taxable output supply to avoid cascading
effect of taxes.
 GST law does not require ‘one to one’ co-relation between inputs/input
services and final products/services. Any eligible ITC can be used for payment
of tax on any taxable output supply.
 IGST is another core aspect of GST. It is a transitory tax to enable transfer of
ITC when goods or services move from one State to another. This is a unique
feature of Indian GST.
 Since ITC can be availed for payment of tax on taxable output supply, as a
natural corollary, ITC is not available when tax is not payable on output
supply, i.e. on exempt supply.
 The exception to the above principle is ‘zero rated supply’, i.e. exports or
supplies to a special economic zone (SEZ) developer/unit, where ITC is
available even if no tax is payable on output supply. Such ITC can be used
either for payment of tax on supplies made with tax or refund of the same
can be obtained. This simple mechanism is used to make exports and
supplies to SEZ completely tax free.
 If a taxable person is making both taxable and exempt supply, he is entitled
to full credit of ITC in respect of inputs, input services and capital goods used
exclusively for taxable supply and no credit at all for inputs, input services
and capital goods used exclusively for exempt supply.