Input Tax credit is the Tax paid by the seller on the purchase of goods or services, which are business expenses that can be reduced from the output GST liability.
Section 16 of the CGST Act lays down conditions to be fulfilled by the seller in order to claim ITC on goods and services considered as business expenses which can be reduced from the output GST liability.
Some of the rules include-
It must be used for Business purposes not for personal use, must have a valid GST invoice, the buyer must pay for the goods or services purchased within 180 days from the invoice date, etc.
The Act has also laid down certain restrictions called blocked credit under 17(5) of the CGST act, where the supplier can’t claim ITC on the goods/ Services purchased for the business.
One of them is no ITC on any goods can be availed if they are given as gifts, whether or not in the course or furtherance of business.
The Karnataka bench of authority for Advance Ruling has made that ITC can be claimed on incentives given to the dealers fulfilling the sales target which was set. These incentives are no longer to be considered as gifts and come under the definition of “Supply” and ITC can be claimed on such goods given.