Page 101 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes 6.7 Provisions of Input Tax Credit

1. Input Tax Credit is very vital to the concept of Value Added Tax system. Input tax is the tax
that a taxable person has paid on his business purchases.
2. Section 13 of the Punjab VAT Act, 2005 deals with Input Tax Credit. The system of credit on
input tax paid is tax-based. It is a major check on leakage of tax.
3. Input Tax includes tax paid on:

(i) Purchases of raw material;
(ii) Goods purchased for resale;
(iii) Purchase of capital goods such as machinery or equipment for use in business;

(iv) Tools and accessories used in business; and
(v) Packing material for resale and use in manufacture.

4. Input Tax Credit is available only on purchases made from taxable persons holding VAT
registration number, in the State.

5. Input Tax Credit can be claimed only by a taxable person holding VAT registration number
on the basis of Original VAT Invoice received from seller.

6. Taxable persons cannot claim Input Tax Credit for the following goods unless they are in
the business of dealing in these goods:

Automobiles including commercial vehicles, three wheelers and two wheelers and spare
parts thereof;
(a) Food, beverages and tobacco products;

(b) Petroleum products;
(c) Goods used for personal consumption or gifts;

(d) Goods used in manufacture, processing and packing of tax free goods;
(e) Office equipment and building material;

(f) Air-conditioning units except where air-conditioning is essential in the
manufacturing process of taxable goods;

(g) Weigh bridge except when installed inside the manufacturing premises for use in
the process of manufacturing;

(h) Goods used in manufacture, processing or packing of tax free goods;
(i) Goods used in generation and distribution of electrical energy; and
(j) Goods which remain unsold at the time of closure of business.

7. If a taxable person is making taxable and tax free sales, he would be entitled to claim input
tax proportionate to his taxable sales using the following formula:

(A × B)/C
A : Total amount of input tax for the period.

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