Input tax credit under GST

Input tax credit under GST

The Input Tax Credit refers to the tax amount paid on purchases, which can be claimed when paying taxes on sales. While this provides a basic understanding, there are several important provisions under the GST law that should be considered. This article will explain these provisions in detail.



What is an input tax credit?

Under GST, the Input Tax Credit is subject to various sections and rules. This benefit is accessible to the supplier and helps to decrease their tax liability for sales. The fundamental requirements for Input Tax Credit are outlined in Section 16 of the CGST Act, while Section 17 imposes some restrictions on its availability. Additionally, Section 18 deals with how Input Tax Credit is handled during the transfer or shifting in a business entity.

How does the Input tax credit mechanism work?

GST is a value-added tax, which means that each individual in the chain is responsible for paying tax only on their value addition. To better understand this concept, consider the following example:

Mr. A is a manufacturer who spends Rs. 80, plus tax, to manufacture a glass bottle. He then sells the bottle for Rs. 100, plus tax. In this scenario, Mr. A is only required to pay tax on his value addition, which is Rs. 20. However, he must still report and pay tax on the full sale amount. To ensure that he is only paying tax on his value addition, he can use the tax amount paid on his cost of Rs. 80 at the time of paying taxes on his sales. Therefore, when he sells the bottle for Rs. 100, he will only pay the tax on his value addition of Rs. 20 via cash ledger.

Tax on Rs. 100 less Tax on rupees 80= Tax on Rs. 20.

It will be declared in his return. In his return, he will show sales of Rs. 100 and input a tax credit of a tax amount of Rs. 80. He will adjust the tax on Rs. 100 with the tax of Rs. 80 first and then will pay the balance via cash ledger.

Read more to know about Input tax credits in GST

Comments

Post a Comment

Popular posts from this blog

What Trademarks cannot be registered in India ?

Image
What Trademarks cannot be registered in India? Trademark registration paves the way for products and services to be uniquely identified. It differentiates between products and services. Trademark registration is a crucial step in establishing a unique identity for products and services. It serves as a differentiator in the marketplace and provides the trademark owner with exclusive rights to their trademark while safeguarding against infringement. This protection is essential for building goodwill, customer loyalty, and valuable assets. To ensure effective brand naming, it's important to have a clear understanding of what can and cannot be trademarked. In this article, we'll explore the limitations of trademark registration in India and provide guidance on choosing a brand name. Absolute Grounds for Refusal of Registration Void of distinguishing characteristics In Indian trademark law, the requirement of distinctiveness is strictly interpreted. A trademark that lacks
Read more

Stamp Duty On LLP Agreement

Image
  Stamp Duty on LLP Agreement What Is an LLP Agreement? The LLP agreement must encompass detail regarding rules and regulations for its partners. Every LLP agreement ought to be stamped to ensure authenticity. The applicant needs to take the printout of the agreement on the non-judicial stamp. Stamp duty varies from state to state and also depends on the contribution of Capital. The LLP agreement serves as a legal document that covers all aspects of the partnership, from its incorporation to its dissolution. It includes details on the roles of partners, their mutual rights, profit sharing, and contributions. The LLP agreement also outlines the partnership's rules and regulations in greater detail. For instance, it may provide information on how new partners can be appointed and how their tenure will end. How is the LLP Agreement prepared? To prepare an LLP agreement, all partners of the Limited Liability Partnership must discuss, agree upon, and sign the clauses outlined i
Read more

Farmer Producer Company Registration

Image
  Farmer Producer Company Registration Farmer Producer Company (FPC) or Farmer Producer Organization (FPO) is an organization that has been designed taking into consideration the requirements of farmers, agriculturists, fishermen, weavers, milk producers, and persons engaged in farming activities, collectively known as ‘Producers’. The main intention of the Farmer Producer Company is to ensure better income for the producers through an organization of their own as the small producers do not have the volume of inputs to get the benefit of agricultural produce on large scale. Additionally, in agricultural marketing, there is a long chain of intermediaries, through which the producers receive only a small part of the value that the ultimate consumer pays. On the other hand, in the Farmer Producer Company, the producers have better bargaining power, bulk buyers of the produce, and bulk suppliers of inputs. Therefore, a Producer Company deals primarily with agriculture and post-harves
Read more