Job work is an important part of the Indian economy. To help this sector thrive, the GST law makes it easier to claim tax credits on job work supplies. Say your company outsources part of its product processing. In that case, you may be able to claim ITC on the items and materials you send to job workers. Here is a brief guide on what is Job Work and how to claim ITC on Job Work under GST.
What Is Job Work?
Job work happens when you outsource part of your production. The GST law defines job work as “any treatment or process undertaken by a person on goods belonging to another registered person.” Say you make decorative pillows. In that case, you might send the front panels to artisans for hand-beading before stuffing the pillows in house. This hand-beading, which is done in a different location by someone other than your regular employees, is considered job work.
What Is the Input Tax Credit?
The input tax credit is a credit you get for the taxes you pay on the inputs for your business. Inputs are the things you buy to help produce your goods or services. These include raw materials, computers, and mechanical components. When you buy these items, you pay GST. When you file your taxes, you can claim that GST amount as an ITC to reduce your tax bill. Additionally, you can ensure items are not taxed twice.
ITC and Job Work
Under the GST law, you can claim ITC for the GST you pay on the materials used in your job work. You can still claim input credit on job work regardless of whether the goods come to your business first. Or if you ship them directly from the supplier to your job workers. Imagine you hire outside workers to attach resistors to circuit boards. You pay Rs 1,000 in GST for the resistors, boards, wire, and soldering supplies you send to your job workers. When you file your monthly return, you can claim that Rs 1,000 as a credit. If your tax liability for the month was Rs 2,500, the credit reduces your final bill to Rs 1,500.
It’s important to note there are time limits attached to the things you send out for job work. For materials to count as inputs, your job workers must send them back to you within one year. Capital goods must be returned within three years. If the items are not returned to you on time, the government sees them as a supply, which means you need to pay GST on them. This doesn’t apply to moulds, dies, jigs, fixtures, or tools; they do not have to be returned to be counted as inputs.
How to Claim ITC on Job Work
If you want to claim ITC on the inputs you send out for job work, you must issue a challan for those goods. This challan must contain all of the information required by the GST invoice rules, including:
- Your GSTIN and contact information
- Job worker’s information
- Description and quantity of goods
- Value of the goods
Before you can claim ITC, you must file form ITC-04, which contains information about your job work inputs. If the goods qualify, you can claim the ITC on your next return.
The ITC can go a long way toward a lower tax bill for your finished products. When you issue detailed challans and file the ITC-04 accurately, you can maximize the credit and stay GST-compliant.