INPUT TAX CREDIT MECHANISM IN GST
GST / VAT is a consumption based tax wherein the basic principle is to tax the value addition at the each business stage. To achieve this, tax paid on purchases is allowed as a set off/ credit against liability on output/income.
INPUT TAX CREDIT SET OFF
- The input tax credit on account of CGST during a tax period shall first be utilized towards payment of CGST; the amount remaining, if any, shall be utilized towards the payment of IGST.
- The input tax credit on account of SGST during a tax period shall first be utilized towards payment of SGST; the amount remaining, if any, shall be utilized towards the payment of IGST.
- No input tax credit on account of CGST shall be utilized towards payment of SGST.
- No input tax credit on account of SGST shall be utilized towards payment of CGST.
- The input tax credit on account of IGST during a tax period shall first be utilized towards payment of IGST; the amount remaining, if any, shall be utilized towards the payment of CGST and SGST, in that order.
- Where credit has been taken wrongly, the same shall be recovered from the taxable person in the manner as may be prescribed in this behalf.
- Input Tax credit of Additional Tax Paid @1% in case of Inter State Supply of Goods will not be available.
UNDERSTAND INPUT TAX CREDIT BY FOLLOWING EXAMPLES:
FIRST WE UNDERSTAND TAXES APPLICABLE IN FOLLOWING CASES:
- Intra State Transaction – CGST and SGST Applicable
- Inter State Transaction – IGST and 1% Additional Tax
- Import of Goods/Service – IGST and Basic Custom Duty (BCD is applicable in case of Import of Goods only)
EXAMPLE 1
XYZ Company is a registered dealer had input tax credit for CGST and SGST Rs.800/- and Rs.900/- respectively in respect of purchase of inputs and capital goods.
He manufactured 1500 Nos. of finished products.
- Goods sold within State – 650 Nos. @ Rs.10 Per Nos.
- Finished product sold in inter-State sale – 550 Nos. @ Rs.10 Per Nos.
- Goods sent on stock transfer to consignment agents outside the State – 3000 Nos. @ Rs.10 Per Nos.
Further, CGST and SGST rate on the finished product of dealer is 5% and 7% respectively. Further IGST rate is 12%. Calculate tax liability of SGST and CGST to be paid after tax credit.
| PARTICULARS | SALES WITHIN STATE | INTER STATE SALES | STOCK TRANSFER | TOTAL |
|---|---|---|---|---|
| Qty. Sold | 650 | 550 | 300 | 1500 |
| Price per unit | 10 | 10 | 10 | 10 |
| Value of Goods Sold | 6500 | 5500 | 3000 | 15000 |
| Tax Amount: | ||||
| CGST (5%) | 325 | 325 | ||
| SGST (7%) | 455 | 455 | ||
| IGST (12%) | 660 | 360 | 1020 |
CALCULATION OF TAX PAYABLE
| PARTICULARS | CGST | SGST | IGST | TOTAL |
|---|---|---|---|---|
| Tax Payable Amount | 325 | 455 | 1020 | 1800 |
| Less: Input Tax Credit | ||||
| Credit | ||||
| CGST | 325 | 475 | 800 | |
| SGST | 455 | 445 | 900 | |
| Balance Payable | 100 | 100 |
EXPLANATION
Input tax credit of CGST and SGST of Rs. 800 and Rs. 900 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 475 of CGST and Rs. 445 of SGST and he is liable to pay balance amount of IGST of Rs. 100 by cash (1020-475-445 = 100).
EXAMPLE – 2
CALCULATION OF TAX PAYABLE
| PARTICULARS | CGST | SGST | IGST | TOTAL |
|---|---|---|---|---|
| Tax Payable Amount | 325 | 455 | 1020 | 1800 |
| Less: Input Tax Credit | ||||
| CGST | ||||
| SGST | 325 | 325 | ||
| IGST | 325 | 155 | 1020 | 1500 |
| Balance Payable | 300 | 300 |
EXPLANATION
Here input tax credit of IGST should first be utilized for payment of IGST and balance is to be used first for payment of CGST and remaining for SGST. Likewise in this case Rs.325 and balance Rs.155 are utilized for CGST and SGST respectively. He is liable to pay balance amount of SGST of Rs.300 by cash.(1500-1020-325-155 = 300).