What Is Input Tax Credit And How To Adjust Or Set-Off ITC It? What makes GST unique is the seamless flow of input tax credit across the whole GST chain that is from the manufacturer of goods till the last consumer and this applies uniformly across the whole nation. Part 1: What is the input tax credit? When you buy certain goods or consume services, you have to pay the amount of GST on the purchase. Now if you are a dealer or a trader, and you further supply these goods or provide some services to one of your consumers, in that case, you will also charge applicable GST on the amount of supply. The GST that you paid at the time of receiving the supply is known as input tax and the GST that you will collect at the time of further supply of goods or services is called output tax. When you supply goods you have to pay the output tax to the government. However, you can reduce the amount of tax that you have already paid on your input supply. This way you will only have to pay the balance amount that is output tax (tax on sales) minus input tax (tax on purchase). The amount of input tax that you utilised against your output tax to reduce your GST liability, is known as an input tax credit. Let’s understand with an example: You are a manufacturer. You’ve produced a good and you are selling it for Rs. 10000. You will have to collect Rs. 500/- (Output Tax) as GST on the supply (assuming 5% GST rate). However, you’ve already paid Rs. 400 as (Input Tax) as GST on the purchase of raw material of Rs. 8000/-. This way, now you will only have to pay Rs. 100 as taxes to the government. (For ease of understanding, we’ve ignored the concept of CGST, SGST & IGST in this example) Part 2: How to adjust or Set-off input tax credits or offset liability in GST? The process of setting off of the input tax credit has been amended. As per the earlier rules, Input Tax Credit was set-off in the following manner: For CGST– The input tax credit of CGST was first set off against CGST and the balance (if any) against IGST. For SGST– The input tax credit of SGST was first set off against SGST, and the balance (if any) against IGST. For IGST – The input tax credit of IGST was first set off against IGST itself and the balance against CGST & then against SGST.
What Is Input Tax Credit And How To Adjust Or Set-Off ITC It?
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