This image helps us understand gst tax as a part of THe buzz stand series

Understanding GST Input tax credit

In our previous article of basics of GST series we have discussed that GST tax was brought in place to remove the cascading effects of indirect taxes. GST tax is an indirect tax which would replace other taxes from 30th June. It is levied on the basis of value added at each stage. Hence, at each stage there would be an output i.e. goods or services you sell on which you would take tax and then there would be input supply like raw materials on which you paid tax. The net tax to be paid has to be output – input. Now, we would look at GST input tax credit in detail

Defining GST Input Tax Credit

As we have discussed above under GST tax, anyone who is registered under GST tax would have to collect GST tax on every sale of goods or services. However, to avoid double taxation the entry or input supplies like raw material, services or consumables are considered. The tax paid on these items by GST registered person is considered and subtracted from output tax. Thus, we get net GST tax that has to be paid. With the use of GST input tax credit mechanism, neutrality can be maintained in business.

Eligibility for Claiming Input Tax Credit

GST input tax credit can only be filed when the person is registered under GST and filing has to be under GSTR 2. The following are the requirements for GST input tax credit

  • Supplier issue invoice, same in nature to that mentioned in GST Act
  • Issuance of debit note by the supplier
  • A document like bill of entry or something similar
  • An input service distributor invoice or credit note

The following conditions are also needed to make sure the person is eligible for GST input tax credit

  • The person who has payed the GST tax should be in possession of debit note or invoice
  • The goods or services should have been received
  • The GST tax that had been charged should have been deposited with government either in cash or in the form of Input Tax Credit

Goods and Services not under GST Input Tax Credit

The following goods or services are not exempt under GST Input Tax Credit

  • Motor vehicles, exception is in the case of when they are used in supplying in the course of business or taxable services like
    • Passenger or Goods Transportation
    • Providing training on driving or navigation services
    • Supplying of such vehicles/ conveyance
  • Supply of goods or services related to FnB, catering, beauty treatment, health services, cosmetic, plastic surgery and beauty treatment except inward supply of goods or services of a category used by person registered under GST for making outward supply using same category
  • Health Club and Fitness Club membership
  • Services like insurance and cab except where it is mandatory for employer to provide the service
  • Travel benefits for employees
  • Any GST taxable person who receives Goods and services for immovable property construction on own account other than plant and machinery
  • If tax has been under composition scheme for goods or services
  • Any goods or service utilized for personal consumption
  • Any disposal of good in form of free sample or gift
  • Payment of taxes for willful misrepresentation, fraud or suppression after they have been detected by the authorities
  • Tax payment for confiscated or detained goods releasing

Making Use of CGST and SGST Input Tax Credit

We would understand with the help of illustration the preference for GST input tax credit and get to know about basics of GST tax.

The image helps in making us understand the basics of GST

Understanding preferences for CGST, IGST and SGST

GST Input Tax Credit Preference

 

Electronic credit ledger would be used for making credit of the payments of CGST, SGST and IGST. For example if input tax credit is CGST then it must be used first for the payment of CGST and remaining utilization of fund can be done for payment of IGST. As we can see from image CGST input cannot be used for SGST payment

These input tax credit cannot be used for payment of penalty and interest. For that purpose, electronic cash ledger has to be utilized

For learning, more about GST tax you can read more at basics of GST series. In case you need any help regarding GST input tax credit you can contact The Buzz Stand Team.