To avoid cascading effect governments all over the world provide input tax credit. Under GST also input tax credit is available which can be utilised to pay against tax liability of output tax.
Before proceeding to input tax credit provisions, first understand some terms and logic behind input tax credit.
GST is an indirect tax, which is levied at each stage of product or service supplied. If we charge tax on entire bill amount without providing relief of tax already paid towards inward supplies, then it will result in multiple taxation and tax will be levied on tax already suffered.
Definition of cascading effect can be explained as a tax on tax. When tax is charged on taxes already paid under the same act, this is called as cascading effect.
For example, if you have purchased a product for and paid tax under GST. Again when you sell the product, if you are including the input tax as a part of your cost and charge tax on it then it becomes a cascading taxing.
Below image explains the cascading effect.
Here you can notice that in 1st transaction, buyer has considered tax charged on purchase as a part of cost and when this product is further sold he pays tax on tax already paid at the time of purchase.
Definition of input tax is any tax paid on the goods or services purchased. If your sales are taxed under GST, then whatever GST you will pay on purchase of products or services will be your input tax.
Input tax credit means credit of input tax.
Section 2 of CGST Act defined input tax as:
In a simple language input tax is tax paid under different GST acts on inward supplies.
Every person who is registered under GST is allowed to take credit of input tax charged on any supply of goods or services or both if they were used for in the business.
Input tax credit will be allowed only if you have:
Further the supplier should have paid the tax to government either in cash or through input credit utilisation and also should have filed the return under section 39.
If you do not pay the invoice amount to supplier within 180 days then input tax credit availed should be added back to you output tax liability. This can be afterwards availed when you pay the amount to supplier.
If you have claimed input tax as part of cost for taking depreciation under Income Tax Act, then you can not avail the credit of input tax paid.
Further the input tax credit can be availed only before filing the return for the month of September after year end or filing of annual return whichever is earlier.
If you are using the goods or services or both partially for taxable outward supplies and partially for exempt supplies or for personal use then input tax credit should be taken only for the amount attributable to the taxable outward supply.
The rules for apportionment are yet to be notified and apportionment have to be made as per rules prescribed by government with this regard.
Input tax credit cannot be taken on certain supplies of goods or services or both. Section 17 of CGST Act, specifies the list of supplies on which credit cannot be taken.
Credit can not be availed on motor vehicles and other conveyances except when they are used for:
Further on following supply of goods or services or both input tax credit is not available:
However if these are further supplied outwards as a taxable supply then input is allowed.
The common thing should be noted that input is allowed if these supplies are further used in supply of taxable supplies.
I will write a different post on:
how to download this app
Which App? Invoicing application?
IT is online application. No need to download. Use it online.
You need to be logged in to comment.
Check your GST numbers in bulk. Check unlimited GST numbers with very cheap packages.