The introduction of the GST regime has left many businesses, especially the SMEs in bewilderment. There are many doubts concerning how it will affect them, and one of these is the migration of the input tax credit from the current VAT or Service Tax system to the new GST system.
Transfer of Credits
The GST taxation system allows a taxable person to collect the credits of the taxes paid by them in the current regime and carry them to the new regime. However, you will need to show a proof of your last return filed under the previous regime.
For instance, since the implementation date for the GST regime is July 1, 2017, you must make sure you have taken the account of your stock you have with you on June 30, 2017. This way, you can claim the input credits when you will file the returns for the period ending on June 30, 2017.
Central Excise Credits
You can carry forward the balance of your CENVAT credit to the GST regime. However, the closing balance of the credit must reflect in the last return filed by you.
Let’s consider an example. Say, you are an electronics manufacturer in Mumbai and registered under the Excise and Maharashtra VAT. Let’s assume you have a CENVAT closing balance of Rs. 30,000 on March 1, 2017. So, the question is- can you transfer this balance credit in the new regime? The answer is both “yes” and “no”.
The answer is “yes” if you can meet the two requirements:
- Your returns filed under ER-1 must show the CENVAT balance
- The transfer must be allowed as per GST’s Input Tax Credit system
For CENVAT, the input tax credit will be called CSGT credit.
Service Tax Credits
In the current regime, a service provider has to inflate the prices on the basis of the following taxes that are levied:
- A standard service tax of 14%
- Krishi Kalyan Cess of 0.5%
- Swachh Bharat Cess of 0.5%
However, the input tax credit facility is available only for Krishi Kalyan cess and Service Tax. If you want to carry forward these input credits then you must file your returns under Form ST-3. The closing balance of the service tax input credit will be transferred to the GST regime as CGST input tax credit.
Value Added Tax (VAT) Credits
Businesses that are registered under VAT have to file returns on a monthly as well as a quarterly basis. Just like in the case of Service Tax and CENVAT, you can carry forward the balance of input VAT credit to GST regime as SGST input tax credit.
Let’s take an example. If your business’s VAT Form 100 reflects credit forwarded as Rs. 10,000 as of March 31, 2017, then your input VAT credit balance is also Rs. 10,000. Again, you are entitled to carry forward this balance if your returns reflect this balance and if GST approves it as input tax credit. If both conditions are met then you can transfer the credits as SGST credit.
In all the three instances that are given above, you are allowed to transfer your pre-GST input credits to the GST regime if you meet the following requirements:
- You must be eligible for claiming Input Tax Credits under GST
- You should have all the invoices or other relevant documents regarding the closing stock of the inputs that you want to claim input tax credits for.
- The invoices must not be older than 12 months from the date of GST migration.
- The benefit of transferred credits must be forwarded to your customers through reduced prices.
As the date of GST roll-out is coming closer, it’s important that you prepare accordingly. Delaying the same can rob you of the benefits that can claim now.