Input Tax Credit in GST, How to adjust Credit, Rates of GST with Compliances: Article 3 by CS Ravi Shankar Periwal and CS Shefali Bharti, Founders of RSPB Corporate Solutions LLP


In our earlier Articles all you have gone through GST Benefits for Individuals & Difference between CGST/SGST/IGST:, hope you will be come across to know the importance of GST.

Now further we are compiled our efforts to put all material facts about GST in next Article
Given below:

Input Tax Credit (ITC) is Goods & Services Tax (GST) paid or payable by a registered person on the purchases or expenses incurred for the business activities. Even though you have not paid any amount to your supplier, you can still claim the credit & get refund from the Customs Department.

Diagram for Input tax credit




How to claim input credit under GST?


To claim input credit under GST –
  • You must have a tax invoice(of purchase) or debit note issued by registered dealer
Note: Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.
  • You should have received the goods/services
Note:

Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.
  • The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
  • Supplier has filed GST returns
Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.
Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.
There’s more you should know about input credit –
  • It is possible to have unclaimed input credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.
If tax on inputs > tax on output –> carry forward input tax or claim refund
If tax on output > tax on inputs –> pay balance
No interest is paid on input tax balance by the government
  • Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
  • Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
  • Input tax credit is allowed on capital goods.
  • Input tax is not allowed for goods and services for personal use.
  • No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.
 
Criteria To Claim Input Tax Credit

 No

Criteria To Claim Input Tax Credit (ITC)

Compliance Status

1

You must be a registered person, that’s taxable person.

Yes

2

The goods or services must have been acquired in the course or furtherance of the business (means for business purposes).ITC is claimable on acquisition of capital assets used in the business (such as equipment, furniture, etc)

Yes

3

Goods or services are acquired for making taxable supplies (standard-rated or zero-rated supplies)

Yes

4

It must not be subject to any restriction such as blocked input tax items

Yes

5

You must hold a valid tax invoice or valid customs importation documents

Yes

6

Tax invoices must be in the name of the registered person unless simplified tax invoices are used.

Yes

 
Suppose there is a seller Mr A and he sells his goods to Mr B. Here Mr B i.e the buyer will be eligible to claim the credit on purchases based on the invoices. Let’s understand how:




How to adjust the credit:

It is levied by State government to replace the existing tax like sales tax, luxury tax, entry tax, etc. It is a combined form of CGST and SGST levied and collected by Central government. It is applicable only in the course of interstate supply. The credit of IGST is available against CGST, SGST and IGST.
Setoff of IGST, CGST & SGST will be as follows in the below mentioned chronological order only:

Credit of

To be Adjusted with

IGST

1.    IGST

2.    CGST

3.    SGST

CGST

1.    CGST

2.    IGST

SGST

1.    SGST

2.    IGST

 
GST Rates:

GST Tax Rate in India. GST Rates Finalised, GST Rate Slabs 5%, 12%, 18% & 28%. Combined GST rate is being discussed by the Government. The Revenue neutral rate is expected around 18%. After the total GST rate is arrived the centre and state will decide on the CGST and SGST rate.
 
GST Nil rate (0%): 
No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc. 
 
GST 5% Items List
Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 percent. 
 
GST 12% Items list
Frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, and cellphones will be under 12 per cent tax slab.
 
GST 18% Items List
Most items are under this tax slab which include flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors. 
 
GST 28% Items list
Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, and yachts will attract 28 per cent tax – the highest under GST system.
Higher threshold for registration

Tax

Threshold Limits

Excise

1.5 crores

VAT

5 lakhs in most states

Service Tax

10 lakhs

GST

20 lakhs (10 lakhs for NE states)


As per the current VAT structure, any business with a turnover of more than Rs. 5 lakh (in most states) is liable to pay VAT (different rates in different states). Similarly, for service tax, service providers with turnover less than Rs. 10 lakhs are exempted.

Under GST this threshold has been increased to Rs. 20 lakhs thus exempting many small traders and service providers.
Composition scheme for small businesses

GST also has an optional scheme of lower taxes for small businesses with turnover between Rs. 20 to 50 lakhs. It is called the composition scheme. This will bring respite from tax burdens to many small businesses.

Simpler online procedure under GST

The entire GST process – starting from registration to filing returns and payment of GST tax – is online. Startups do not have to run around to tax offices to get various registrations under excise, VAT, service tax.

Lesser number of compliance's

Also, the current tax regime has excise VAT and service tax, each of which have their own returns and compliances.

Tax

Return filing

Excise

Monthly

Service tax

Proprietorship/Partnership- Quarterly

Company/LLP- Monthly

VAT

Different for different states

Some states require monthly returns over a threshold limit. Some states like Karnataka require a monthly return


GST will unify all these, thereby reducing the number of returns and the time spent for tax compliances. There are about 11 returns under GST, out of which 4 are basic returns which apply to all taxable persons under GST.

Defined treatment for e-commerce

Many Indian businesses provide goods and services through the internet. Earlier, there were no specific provisions for treatment of the e-commerce sector. Currently, states have variable VAT laws for this sector. For example, online websites (like Flipkart and Amazon) delivering to Uttar Pradesh have to file a VAT declaration and the registration number of the delivery truck. Tax authorities can sometimes seize goods when there is a failure to produce documents.

Again, these e-com brands are treated as facilitators or mediators by states like Kerala, Rajasthan, and West Bengal which do not require them to register for VAT.
All these differential treatments and confusing compliances will be removed under GST. For the first time, GST clearly maps out the provisions applicable to the e-commerce sector and since these will apply all over India, there should be no complication regarding inter-state movement of goods anymore.

Increased efficiency in logistics

The logistics industry in India had to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. Most of the times, these warehouses were forced to operate below their capacity thus increasing their operating costs.

When GST goes live, these restrictions on inter-state movement of goods will be lessened and the logistics sector might start consolidating warehouses across the country. As an outcome of GST, warehouse operators and e-commerce players have already shown interest in setting up their warehouses at strategic locations such as Nagpur, which is the zero-mile city of India, instead of every other city on their delivery route.

Reduction in unnecessary logistics costs will increase profits for businesses involved in supply of goods through transportation.
 
Further Topic Regarding "GST Rates Comparison Chart on Services" will be explain in next coming Article No.4


Authors Details:

RSPB Corporate Solutions LLP
Partners

CS RavishankarPeriwal                              CS ShefaliBharti
Mem:A42832                                             Mem:A42905
Email:csraviperiwal@gmail.com                Email:csshefalibharti@gmail.com
Contact: 8866438401                               Contact:8960825113/9807656327



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Kindly note here that the contents of this article is only for the information purposes prepared by the Author on the basis of relevant provisions, rules, notifications, circulars and as per the information prevailing at the time of the drafting of this write up. The Author and the Site www.blogs.compliancecalendar.in hereby do not propose to provide any sort of professional advice/service through this write up. Moreover, appreciate that any reliance on such article will not be considered as our advisory. Though, while writing the article, utmost care has been taken to mitigate the chances of errors or omissions by the Author. However, there is always room for some human errors or omissions. Therefore, it is earnestly requested from the readers to check at your end and confirm from any Professional before acting on any of the information’s provided herein above by the Author. Compliance Calendar LLP shall not be responsible for any loss or damage happened (if any).

 

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