Goods and Services Tax (GST) is an indirect tax which was introduced in India on 1 July 2017 and was applicable throughout India which replaced multiple cascading taxes levied by the central and state governments.

It was introduced as The Constitution (One Hundred and First Amendment) Act 2017, following the passage of Constitution 122nd Amendment Act Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India. Under GST, goods and services are taxed at the following rates, 0%, 5%, 12% ,18% and 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 22% or other rates on top of 28% GST applies on few items. GST replaced a slew of indirect taxes with a unified tax and is therefore set to dramatically reshape the country's 2 trillion dollar economy.

GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services. GST is a destination based tax which is levied only on value addition at each stage because credits of input taxes paid at procurement of inputs will be available. Thus, the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.


What taxes will be levied under GST?

Since India is federal country, Centre Government and State Government both have powers to levy taxes.Under GST regime, Centre and State both have power to levy GST. Therefore, GST in India is divided into two parts:

  • CGST: Central collects the revenue (Intra State Sale)
  • SGST: State collects the revenue (Intra State Sale)
  • IGST: Central collects the revenue (Inter State Sale)

GST will be divided into two components, one is CGST which is levied by Central Government and other is SGST which is levied by State Government. If making a sale within the state the tax is shared between Central and State. Ie: CGST+SGST For a sale to another state the tax goes to Central ie: IGST

SGST would be leviable along with CGST on the supply made by a registered person within a State. Just as SGST is leviable along with CGST on the supply made by registered person within a State, UTGST would be levied along with CGST on the supply made by a registered person within a Union Territory. However, in no case, both SGST and UTGST would be leviable on an invoice of supply of goods or services or both. It would either be SGST or UTGST along with CGST would be leviable on the invoice. IGST would be leviable on Import or Inter-State supply of goods or services or both. IGST would be equivalent to sum total of CGST and SGST/UTGST.

Under the current tax regime, various transactions and financial services attract service tax, which is going to be replaced by GST. As of now, service tax is flat 15% across all type of services. However, under the GST, it will be divided into four slabs i.e. 5%, 12%, 18% and 28%.


Input Credit in GST

Input Credit Mechanism is available to you when you are covered under the GST Act. Which means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

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.
  • 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.
 
 

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