May 292012

VAT Input Credit is not available for all types of purchases, there are certain purchases which are in eligible for Input Tax credit Claim. The Eligible and Ineligible Purchases for the purpose of Input Tax Credit are given below :-

Eligible Purchases:

Purchases made:

è For sale/resale within the state

è For interstate sale (Sale outside the state)

è For being used in the execution of WORKS contract

è For making other zero rated sales

è To be used as capital goods required for manufacture or resale of taxable goods

è To be used as packing materials, raw materials or as consumable stores of the goods intended to be sold within/outside the state or in the course of export of the goods.

Ineligible Purchases:


è Made From unregistered dealers

è Made From other states (interstate purchases)

è Made From registered dealers opted for composition scheme

è Of non-creditable goods

è Made from outside the territory of India

è Of goods used in the manufacture of exempted goods

è Made from the dealer, where his invoice doesn’t show the tax amount charged separately

è Of goods meant for personal use

è Where there is no evidence or absence of invoice

è Of capital goods where credit is available in parts.

è Of goods to be used as fuel in generation of power

è Of goods meant for branch transfer.



  18 Responses to “Eligible & Ineligible Purchases for VAT Input Tax Credit”

  1. thanks for updation

  2. In case of Discount received by the Supplier as the material was not satisfied. But accounted full purchase & paid tax accordingly.

  3. can input credit under TN VAT be taken on office consumables like pen drive, printer catridge, key board/mouse purchased, etc

    • Dear Mr Sankar,

      Section 19(2) of the TNVAT Act clearly specifies the circumstances under which the Input Tax Credit can be claimed. They are :-

      1) re-sale by the dealer within the state , or
      2) use as input in manufacturing or processing of goods in the state ; or
      3) use as containers, labels and other materials for packing of goods in the state ;or
      4) as capital goods in the manufacture of taxable goods ; or
      5) sale in the course of inter-state trade or commerce falling under section 8(1) of the CST act
      6) agency transactions by the principal within the state in the manner as may be.

      Since office consumables cannot be correctly fit into this definition, i am of the opinion that ITC cannot be claimed on the same.

  4. i am a registered dealer of valves in Chennai. I have purchased Valves from the Manufacturer on VAT. i have sold the same material to a dealer in another state on CST @2%. Can I claim Credit for the excess VAT paid. The goods purchased attracts 5% VAT in Chennai.

    • Dear Mr. Vishal,

      Yes. The CST due can be set off against the Input Tax Credit as eligible. Also note that from November 2013 onwards, CST sales @ 2% (against C form) will attract reversal of ITC @ 3%. After the reversal of the ITC as above, the balance ITC can be set off against the CST due.

  5. Can TN Vat returns be filed for a period prior to registration date? If so, can input credit for the purchases can be claimed?

    • In my opinion, VAT return can be filed only for the period after registration.
      With regard to claiming input vat credit, i am of the opinion that you cannot claim the input credit since the purchases prior to registration will not bear the TIN number of the buyer in the Tax invoice, in the absence of which you will not be able to claim the ITC.

  6. Sir,
    We are purchasing distilled water and chemicals locally for lab purpose. Whether it is eligible for input credit

    • Dear Sir,
      The basic condition for claiming Input Tax Credit (ITC) is as follows :-
      The ITC shall be allowed for purchase of goods made within the state from a registered dealer and which are for the purpose of –
      1) re-sale by him within the state ; or
      2) use as input in manufacturing or processing of goods in the State ; or
      3) use as containers,labels and other materials for packing of goods in the state ; or
      4) use as capital goods in the manufacture of taxable goods.
      5) Sale in the course of Inter state trade or commerce (CST Sale)
      6) agency transactions by the principal within the state in the manner as may be prescribed.

      If any of the conditions are satisfied, you can claim the Input tax credit.

  7. Sir,

    We are purchasing VKGUY / FPS licence locally (tax paid) and not claiming Input tax.

    Kindly inform we have to declare this purchase turnover in our monthly return Annex – 1.


  8. What is meaning of capital good

    • Good that are purchased & used for manufacuture of goods chargeable to VAT is Capital Good

  9. can we take input of retail invoice taxable

    • In order to avail the Input tax credit, the following are the conditions :-

      1) The seller is a registered dealer in TN. The buyer should also be a registered dealer
      2) Name , address & TIN of bother seller & buyer is clearly mentioned in the invoice
      3) The name of the Document should be “Tax Invoice”
      4) There should be full details of the net amount, vat amount along with rate of vat and total amount in the invoice.
      5) The vat payment by the seller should not be on composition scheme (0.5%)

      If these conditions are satisfied, then you can claim the ITC.

  10. In an education institution if any work is done of fabrication does the vat is eligible on fabrication work.

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