As the financial year draws to a close, many businesses rush to make bulk purchases in March, hoping to optimise their Goods and Services Tax (GST) outflow. However, tax experts caution that this strategy may not always work, since input tax credit (ITC) eligibility is strictly tied to the date of receipt of goods or services—not merely the invoice or payment date.
Explaining the issue, CA Nitin Kaushik said that a common mistake businesses make is assuming they can claim ITC in March if the invoice and payment are recorded in the same month. “For instance, if a laptop is ordered on 31st March with GST of ₹18,000 paid upfront but delivered on 2nd April, the ITC cannot be claimed in March. The credit will only be available in April, when the goods are actually received,” he clarified.
What is Input Tax Credit?
Under GST, ITC allows businesses to offset the tax paid on purchases against their GST liability on sales, thereby avoiding double taxation and easing cash flow. For example, a company with an output tax liability of ₹450 and input taxes of ₹300 can utilise the ITC to reduce its net tax payable to ₹150.
Conditions for Claiming ITC
The GST framework prescribes strict conditions for availing ITC:
- Possession of a valid tax invoice
- Actual receipt of goods or services
- Supplier’s payment of GST and filing of GSTR-1
- Recipient’s reporting of ITC in GSTR-3B
- Payment to the supplier within 180 days
Additional rules apply for goods received in instalments, capital goods (where claiming depreciation on GST bars ITC), and purchases used exclusively for business purposes. Businesses under the composition scheme are not eligible to claim ITC.
Kaushik stressed that even if an eWay bill is generated in March, the ITC cannot be booked until the goods physically reach the buyer. “Delivery remains the decisive factor,” he said.
Year-End Challenges for Businesses
This distinction becomes critical during financial year-end planning. Bulk purchases made in late March often result in ITC being carried forward to the next year if deliveries are delayed beyond 31st March. Businesses, therefore, must carefully track delivery dates and plan for potential cash outflows until ITC becomes available in the subsequent tax period.
For companies engaged in job work, Kaushik highlighted that ITC is permissible on goods sent directly to job workers without first reaching the principal’s premises. Still, the principle of receipt remains central to determining eligibility.
Expert Advice
Kaushik advised businesses to avoid last-minute buying sprees merely to reduce their year-end tax liability. Instead, they should align purchase planning with delivery timelines and budget for temporary cash payments when ITC is not immediately claimable.
Bottom line: An invoice or payment in March does not automatically entitle a business to claim ITC for that month. Only when the goods or services are received can the credit be availed—pushing the benefit into the next financial year if delivery happens after 31st March.
