Key Principles for Eligibility of Tax Credits

By Registrationwala

2nd April 2017


Input tax credit is another reform proposed as the part of GST bill. Input Tax credit translates to the credit taken on Central Tax, State Tax, Union Territory Tax, Integrated Tax and Compensation Cess which is paid on the supply of goods or services by a supplier that can be used by a recipient for payment of its output tax liability.

Apart from that integrated tax paid on import of goods or services as well as the tax paid by the recipient on reverse charge basis will be made available as a part of the input tax credit ambit.

  • The tax credit order of utilization has been pre-defined. The payment of Integrated, Central and State Taxes, or as the case may be, Union Territory tax can be done by Integrated Tax credit in this already defined order.
  • The payment of Central Tax and Integrated Tax can be made by using the Central Tax Credits.
  • The payment of State Taxes or Union Territory Taxes and Integrated Tax can be made by using State Taxes credits or Union Territory Taxes credits

Having mentioned above the cases in which the tax credit can be used, there are also cases in which credit cannot be used.

  1. Payment of interest
  2. Payment of penalty or fees

These are the cases when tax credit cannot be used.

Apart from the above mentioned one should also be aware that compensation cess can be used only for payment of compensation cess and no other payment.

Criteria for availing tax input credibility.


Principles of tax input credibility can be focused on three segments separately. Namely the Supplier, the recipient and its impact on the goods and services.


To be eligible for tax input credit the supplier needs to be registered under the GST. The supplier not at any time be under composite levy. He is also expected to have deposited the tax to the government, under credit to the government.



To be eligible for the tax input credit the recipient must be registered with the GST similar to that of the supplier. On the same grounds recipient should also not be under any composite levy at any given point in time. To be eligible in case of a reverse charge, the recipient should have paid tax to the government. Payment terms to the supplier should be cleared and paid within 180 days marked from the date of invoice issued. The bottom line being the recipient in all true sense should have actually received the goods or the service that he is claiming the credit for.

Goods & services


The goods and services that make to the list are the ones that intended to be used in due course of business presently or in near future. These goods should also not be a part of the negative list.

To get further clarity on the intended due course or furtherance of the business, one needs to understand that tax that is paid on inputs, input services or capital goods which are used for conducting or maintaining a business by the recipient can be made available as credit.

‘Use in the course or furtherance of business’ is the phrase used in defining the goods and services that are eligible for tax credit. The word furtherance implies the allowance of credit of tax for not just current but also to newer lines of businesses.


Key Principles for Eligibility of Tax Credits