1.What is tax credit?
Taxpayer who has been registered under VAT has to make payment of tax amount after deducting input tax from output tax. Such deduction of tax amount paid while purchasing from the tax amount collected while selling and paying the deducted amount to the tax office is known as tax credit.
2. On what goods can you claim for tax credit for the paid tax?
You cannot claim for tax credit for purchase of goods from unregistered person. Registered taxpayers can claim for tax credit for the expenses incurred during business transactions while purchasing or importing raw materials, subsidiary raw materials, packing materials, re-selling materials, machinery tools, equipment, office materials, telephone charges, vehicles, diesel and telecom system and all other expenses related to business transactions.
3. On what goods that you cannot claim for tax credit?
Following foods that can be used both for business as well as personal use cannot be claimed for tax credit:
- Alcoholic beverages like wine, beer,
- Petroleum fuel like petrol, diesel, LP gas,
- Expenses for recreation.
However, if supply of these goods and services are main business transactions, such business can fully claim for tax deduction.
4. If you transact both tax exempted and taxable transactions, can you claim for all tax paid while purchasing as tax credit?
You cannot claim for tax credit for all the tax paid at purchase if you have both tax exempted as well as taxable transactions. Tax paid directly in purchase or import of taxable goods and services can only be claimed for deduction. But if direct relation cannot be shown for sale of taxable goods and services with purchase or import of such goods, taxpayer can proportionately deduct tax paid while importing or purchasing from taxable sale transactions.
5. On what goods can you claim for partial tax credit?
You can claim for 40% of cost price as tax credit on purchase of automobiles for business as well as personal use. Automobiles in this sense refers to vehicles with three or more wheels carrying passengers. However, in context of business enterprises with primary transaction of automobiles can claim for 100% tax deduction.
It should be reminded that small retailers who have bought personal vehicles cannot claim for tax credit. But if you use if for business purpose too, you can claim for 40% of cost price.
6. Can tax credit be claimed if your purchased goods get stolen or destroyed in fire while on the way?
You can submit an application for tax credit to IRD within 30 days if the value of the goods has to be deducted from the stock or if it has to be sold in lesser price due to consequences arising from fire, theft, accident or other destructing events. If insurance has been done, you can also deduct yourself to the extent of compensation from insurance company.
7. What happens if you cannot sell goods that has been provided tax credit because of its expiration of date?
You can return the goods issuing debit note. If the producer denies to take back the goods, you can submit an application to IRD for tax credit on such goods within 30 days from the date of such expiration. If insurance has been done, you can also deduct yourself to the extent of compensation from insurance company.
8. Can you get tax credit for purchase of vehicles from bank in hire purchase scheme?
Yes, you can get tax credit for purchase of vehicles from bank in hire purchase scheme.
9. When should you claim for tax credit for the purchased goods?
You can claim within one year from the date of purchase.
10. How can you claim tax credit for goods in stock purchased before registration?
You can submit an application to the tax officer in the prescribed format provided in Schedule 16 for claiming tax credit for goods in stock purchased before registration. While claiming, you need to submit invoices showing payment of tax and other documents within 15 days from the date of application.
11. What are the documents required for claiming tax credit for imported goods?
You need to submit custom declaration form, cash receipt and invoice of goods.
In case of services imported from besides custom, you need to submit invoice of services and evidence of payment.
12. How can you claim tax credit while purchasing woods from District Forest Office without invoice?
You can you claim tax credit by submitting the revenue receipt provided by the office while purchasing woods from District Forest Office although you are not given any other invoice.
13. When should you claim for tax credit while importing goods by keeping security or bail?
Tax deduction cannot be made unless the price of imported goods and services has been maintained. You can claim for tax credit for the imported goods by keeping security or bail within one year from the date of determination of price.
14. What happens if you lose your invoice?
You may claim for tax credit by producing certified copy of the invoice. But you will be fined for losing the invoice.