Category: GST

Input Tax Credit Utilization of GST – Part-III

We have discussed in last article that how GST is calculated on purchase or sale of goods. In today’s blog we will discuss tax treatment of GST and its set-off or utilization.

If purchase and sale of goods or rendering of services done within a state, there will be CGST and SGST applicable on goods or services.

Suppose, M/s. ABC Ltd. (Gujarat State) purchases goods from M/s. XYZ Ltd. (Gujarat State) worth Rs. 10,000/- and rate of GST is 18%. Then M/s. ABC Ltd. will take a credit of SGST @ 9% i.e. Rs. 900/- and CGST @ 9% i.e. Rs.900/-.

Now, if M/s. ABC Ltd. sells these goods to M/s. PQR Ltd. (Gujarat State) worth Rs. 6,000/-, they have to collect GST @ 18% from M/s. PQR Ltd. So Tax Liability of SGST is @9% i.e. Rs. 540/- and CGST is @ 9% i.e. 540/-.

At the time of payment of tax, SGST can be set off against SGST liability and CGST can be set off against CGST liability. Hence, in our case, M/s. ABC Ltd. can avail tax credit of Rs. 1,800/- GST paid at the time of purchase of Goods against tax liability of Rs. 1,080/-.

Now, if M/s. ABC Ltd. sells some goods to M/s. STU Ltd. (Maharastra) worth Rs. 6,000/-, they have to collect IGST @ 18% from M/s. STU Ltd. So tax liability of IGST is Rs. 1,080/-.

At the time of payment of tax, remaining tax credit of SGST and CGST (i.e. Rs. 720/-) can be availed against the tax payment of IGST of Rs. 1,080/- in our case and balance Rs. 360/- will be paid to the exchequer.

Numeric summary of the above case is presented in the table below. Tax liability is shown in brackets.

The Input CGST and SGST can be utilized for tax payment of sale of goods within state as well as outside state as mentioned hereunder. Input credit utilization figures are shown in brackets.

In nutshell, the tax credit can be utilized as described in the table below:

We will discuss some interesting instances of implication of GST in my further articles. Your queries / feedback may please be emailed to me at s20.training@gmail.com .

• By CA Jigar Patel

We have understood in the last article that GST will consolidate all the indirect taxes levied by State as well as Central Government.

There are so many problems or hindrances in the existing tax system. They creates hurdles for any business to grow. Some of them are as under :

•  VAT is being charged by each state government at different rates for same product.
•  We can’t take tax credit of Excise against VAT.
•  There is also tax on tax as VAT is being also charged on Excise amount.
•  In case of Inter-state transactions CST is being levied. The credit of the same can also not be taken in the existing tax system.

So, it is very difficult for any business to grow in India. There is also a very complex tax system of indirect taxes. The compliance of taxes are also varied from state to state. After implementation of GST there will be only one tax rate for one product. So, there will be One Nation One Tax. The advantages of the GST are as under :

•  One Nation and One Tax on all product categories
•  As there is only one tax called GST so, there is no question of cascading effect of tax
•  In case of inter-state transaction or purchase from manufacturer, full tax credit can be availed by the buyer.
•  All the indirect taxes are integrated to GST. So lesser complication and compliance as compared to present system.

Now, we will understand with an example how the GST is different or beneficial from current indirect tax structure.

Example :

If we see in the above example for current tax system, excise duty levied on the product can’t be utilized for the payment of VAT. Moreover, VAT is also chargeable on excise duty. It is called cascading effect as there is tax on tax. However, in case of GST, there is no cascading effect of tax and there is no complexity of taxation.

The Government recently decided Tax rate for 98 categories of goods and also for services. The tax rates for various categories are fixed at any of these four rates, i.e., 5%, 12%, 18% and 28%. Government is very  keen to implement the new tax system from 1^st Jul, 2017.

Link of GST rate for services

http://www.cbec.gov.in/resources//htdocs-cbec/gst/Schedule%20of%20GST%20rates%20for%20services.pdf

Link of GST rate for goods

http://www.cbec.gov.in/resources//htdocs-cbec/gst/chapter-wise-rate-wise-gst-schedule-18.05.2017.pdf

By CA Jigar Patel