VAT on expenses

Under which conditions will businesses be allowed to claim VAT incurred on expenses?

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).


  • Here to be a taxable person means the business have to be registered for VAT, the end users who actually pay the total tax and consume the products are not registered and o the end consumer cannot claim the input tax credit.


  • So if a retail shopkeeper buys the goods from wholesaler then he would be able to take the input tax credit (assuming he is a registered person under VAT) but if the end consumer buys the goods from the retail store then he cannot claim the input tax credit.


  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).


  • If VAT has been charged at a % that is incorrect or the VAT amount charged was wrong due to any kind of error intentionally or unintentionally then the input tax credit cannot be claimed.


  • Suppose the business was chargeable on 15000 and by mistake it was charged on 10,000 then the VAT is not charged correctly and thus cannot be claimed.


  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).


  • In VAT the Vat invoice holds a very important place as it is the document that shows that VAT has been paid by you on the goods that are purchased, and the invoice should show clearly the amount of VAT paid also, without proper documentation the input tax credit cannot be claimed.


  • Take for example you purchased goods worth 15000 but the invoice was misplaced by you before the VAT payment is one, then you cannot claim input tax credit on those goods worth 15000, however if the sseller provides you with a duplicate invoice then it serves as a documentation and you can claim the input tax credit.




  • The goods or services acquired are used or intended to be used for making taxable supplies.


  • VAT credit can be passed on only if the goods purchased are used in manufacturing a product that is a taxable end product, because if the end product is not taxable then the input tax credit cannot be taken.


  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.


  • The time limit for claiming back the input tax credit balance is 6 months, thus the vat input tax credit should be either adjusted or claimed back(incase of 0 rated output products) within 6 months of the purchase made.


BMS has its own team of VAT Consultants to make all your VAT related procedures and compliances hassle free who will be take care of all your VAT requirements as :

  • Registration
  • compliances
  • VAT payments and
  • VAT Returns.


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