Input tax means:- when a business man pays SGST, IGST, CGST or UTGST at the time of purchase of goods or services for the purpose of resale. Input tax paid on purchase of capital goods which are purchased by registered person during the course of running of business and also activities which would further the interest of business. Thus, the input for the business can be divided in to three parts as follows:-

  1. Input goods other than capital goods
  2. Input services
  3. Input capital goods.

Basically a business uses Input Service, Input goods and input capital goods for adding the value to the goods or services supplied. Therefore, the input tax paid on in respect of services, goods and capital goods will be adjusted against the tax collected from further sale of goods or services by the businessman

To avoid the double taxation, input tax is adjusted against GST payable on further sale of goods by businessman. For example Mr. A purchased goods for Rs.one lakh and he pays Rs.12000/= as IGST on the purchases. Further he sells the same goods to Mr. B for Rs.120000/= and collects IGST for Rs.14400/=. In this case, he is supposed to deposit with the government Rs.2400/= (difference between IGST collected from sale and IGST paid on purchase of goods.

Rules for Input Tax Cred under GST are follows:-

  • IDITNPUT TAX CREDIT OF IGST:- Input Tax Credit under IGST has to be first utilized for payment of IGST. The balance amount, if any will be utilized for payment of CGST, and after that it can be adjusted against SGST or UTGST.
  • INPUT TAX CREDIT OF CGST:- Input Tax Credit under CGST, first will be utilized for payment of CGST and the balance can be adjusted against payment of IGST. But Input Tax Credit of CGST can not be utilized for payment of SGST or UTGST.
  • INPUT TAX CREDIT OF SGST:- Input Tax Credit under SGST has to be first utilized for payment of SGST. The balance amount if any, can be utilized for payment of IGST. Input Tax credit under SGST can not be utilized for payment of CGST.
  • INPUT TAX CREDIT OF UTGST:- Input Tax Credit Under UTGST has to be first utilized for payment of UTGST. The balance amount, if any, can be utilized for payment of IGST. Input Tax Credit of UTGST can not be utilized for payment of CGST.

We will try to understand the Input Tax Credit through following example:-

  1. Mr. A of Haryana sold goods to Mr. B of Utter Pradesh for Rs.1000/= and the rate of GST is 20%. In this case, IGST will be charged. Because this is an Inter-State supply. Therefore, Mr. A collects IGST from Mr. B for Rs.200/=.  Mr. A has to deposit Rs.200/= as IGST. We assume that Mr. A does not have any Input Tax Credit.
  2. Mr. B of Utter Pradesh sold same goods to Mr. C of Utter Pradesh for Rs.1500/=. Since this is Intra-State supply, SGST and CGST would be charged on Rs.1500/= 10% each. Mr. B collects SGST for Rs.150/= and CGST for Rs.150/= from Mr. C. Since Mr. B has availability of Input Tax Credit under IGST for Rs.200/=, he will first adjust Rs.150/= against liability of CGST of Rs.150/= and Balance Rs.50/= against the liability of SGST. Now, Mr. B has to deposit Rs.100/= under SGST.
  3. Mr. C of Utter Pradesh sold the same goods to Mr. D for Rs.2000/=. Being the Intra-State supply, Mr. C will charge SGST 10% and CGST 10% on Rs.2000/= and the amount for SGST and CGST will be Rs.200/= each. Mr. C has the Input Tax Credit available under CGST for Rs. 150/= and under SGST Rs.150/=. Mr. C will adjust the Input Tax Credit of CGST for Rs.150/= against Rs.200/= collected as CGST from Mr.D and the balance of Rs.50/= will be deposited him under CGST. Mr. C will adjust Input Credit Tax under SGST for Rs.150/= against the SGST collected from Mr.D for Rs.200/= and the balance will be deposited by him under SGST.

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