Provisional Input Tax Credit can be utilised against

Question

Question

This question was previously asked in

UGC NET Paper 2: Commerce 4th March 2023 Shift 2

Answer 1

The correct answer is Self-assessed tax liability.

Key Points

Provisional Input Tax Credit (ITC) is a mechanism under the Goods and Services Tax (GST) system that allows registered taxpayers to claim credit for the GST paid on their purchases while they await the finalization of their GST returns.
This is especially relevant when the supplier has uploaded their invoices but the recipient has not yet reconciled or matched them in their return.

Important PointsProvisional ITC can be utilized against -

Receipt of Provisional ITC -
- When a registered taxpayer makes purchases, they pay GST on those purchases.
- This GST paid is considered as Input Tax.
- However, in the GST system, the recipient can claim this credit only when the supplier uploads the invoice and the recipient accepts it.
Provisional ITC Claim -
- In the interim period, while the recipient is waiting for the supplier's invoices to be uploaded and reconciled, they can provisionally claim credit based on their own records of purchases.
Utilization against Self-assessed Tax Liability -
- The taxpayer uses this provisional credit to offset their own self-assessed GST liability.
- For example, when they file their monthly or quarterly GST return, they calculate the GST they owe based on their sales (Output Tax).
- They can then use the Provisional ITC claimed to offset this tax liability.
Reconciliation -
- Eventually, when the supplier uploads the invoices and they match with the recipient's records, the Provisional ITC gets adjusted.
- If there are any discrepancies, they need to be rectified.
Final Adjustment - Once the final reconciliation is done, any excess or short utilization of Provisional ITC is adjusted in the subsequent GST returns.