GST ITC - Vendors affecting Working Capital
- Team Fiska
- Dec 3, 2024
- 2 min read
Input Tax Credit (ITC) is the tax credit the buyer gets when they buy goods or services from a seller who charges GST on their invoice. This ITC can then be availed and utilized to reduce the buyers GST payable in cash.
Some important points to note here are
Availing ITC is based on certain conditions, which when satisfied makes the ITC eligible for availment
Avail here means taking the ITC
Utilize here means utilizing the availed ITC to reduce GST payable in cash
ITC can be Availed only when Visible on GST Portal
One of the conditions for availing ITC is that it should be visible in the buyers GSTR-2B on GST Portal. This happens when the seller files their GSTR-1/IFF.
What happens when there is a delay in filing return by the seller
If there is any delay is filing the GSTR-1 by the seller, then the ITC will appear in the GSTR-2B of a later period and not in the GSTR-2B of the month of invoice.
So, for the time being, the buyer will have to pay GST in cash which should have been paid by availing and utilizing ITC.
What happens when seller does not file GSTR-1
If the seller does not file GSTR-1, the buyer will never get the ITC.
What happens when seller files GSTR-1/IFF but does not file GSTR-3B
If the seller files GSTR-1/IFF but does not file GSTR-3B, it effectively means they are not paying GST on their sales to the government.
In such cases, the government may recover ITC the buyer has utilized with interest @ 18% p.a. and penalty (if applicable).
Consequences of availing ITC not Visible on GST Portal
If a buyer avails and utilized ITC not visible in their GSTR-2B, the government will recover such amount from them with interest @ 18% p.a. and penalty (if applicable)
However, if the buyer only avails such ITC and not utilize it, then they only have to reverse the availed ITC without bearing any interest and penalty.
Whenever there is a delay or non-filing by the seller, the cost is always borne by the buyer. This leads to requirement of higher working capital and sometimes even loss of money.
Therefore, it is important that the buyers deal with compliant sellers and safeguard themselves.