GST uplifts india

What is GST Input Tax Credit? How Does it Work?

The Goods and Services Tax is a game-changing reform for the Indian economy as it will bring the net applicable tax on goods and services down to a great extent, and make the very act of doing business simpler and easier. However, one of the biggest features that GST will bring to the table is the elimination of cascading effect of taxes through Input Tax Credit. But what is it anyway?

Simply put, Input Tax Credit allows you to reduce the total tax you pay on the goods/services you are selling. For instance, in the traditional system when you buy raw materials as inputs to produce and sell a certain product you pay tax on them. Similarly, when you finally sell the finished product you again have to pay a tax on it. Input tax credit allows you to eliminate this repeated tax. So, using the Input Tax Credit, you can deduct the tax you have paid on the inputs from the total amount or the final amount at the point of outputs.

Let’s consider an example to understand how ITC makes a difference in our current taxation system.

Selling a Product in the Current System

Let’s say a dealer A from Mumbai sells a product worth Rs. 1,000 to another dealer B in Nagpur. After levying VAT @ 10% the cost of the product becomes

Rs. 1000 + 10% of Rs. 1000 = Rs. 1000 + Rs. 100= Rs. 1100

Now, dealer B keeps the profit margin at Rs. 1000. So, the selling price of the product becomes:

Rs. 1,100 + Rs. 1,000 = Rs. 2,100.

Before selling he also has to levy a CST (Central Sales Tax) @10%. Thus, the actual selling price, i.e. the price the dealer C in Chennai will have to pay becomes:

Rs. 2,100 + 10% of Rs. 2,100 = Rs. 2,100 + Rs. 210 + Rs. 2,310.

GST Registration india

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Selling a Product in the new GST System

Taking the same example, the product is sold by the dealer A to dealer B at Rs. 1,000. However, in the GST regime, there are just two indirect taxes instead of VAT, which are CGST (Central GST and State GST). Let’s say they are both levied @ 5% each.

Thus, the price becomes:

Rs. 1,000. + 5% of Rs. 1,000 (CGST) + 5% of Rs. 1,000 (SGST)= Rs. 1,000 + Rs. 50 + Rs. 50= Rs. 1,100

Now, dealer B sells the product to the dealer C in Chennai after adding his profit margin i.e. Rs. 1,000. Thus, the selling price is:

Rs. 1,100 + Rs. 1,000 = Rs. 2,100.

Since it is an inter-state supply of goods and services; the center will collect another tax called Integrated GST (IGST).

If IGST is levied @ 10% then the tax amount is:

10% of Rs. 2,100= Rs. 210

However, the credit of both CGST and SGST can be taken against IGST.

Thus, the net applicable tax will be:

IGST- CGST-SGST= Rs. 210 – Rs. 50 – Rs. 50= Rs. 110

and the final price of the product is:

Rs. 2,100 + Rs. 110 = Rs. 2,210

Thus, this is how GST eliminates repeat taxes and makes the final cost of a product more reasonable.

Now, ITC has its advantages, but not everyone can avail them. You must satisfy the following conditions in order to use GST Input Tax Credit:

  • You must be registered under the GST Common Portal.
  • You can only claim ITC on those goods and services that have been used for commercial purposes.
  • You can only claim ITC for zero rated (exports) or other taxable supplies.
  • If you have sold or transferred your business then the unused ITC have to be transferred to the new business.
  • You must possess a valid tax invoice or relevant customs importation documents (in the case of imports).
  • The tax invoices must be issued under the name of the registered person.

Practical/Relatable Examples on How to Claim ITC under GST

Broadly speaking, there can be three different situations in which you can claim ITC:

  1. When you are liable (or have already applied) for GST registration

If you have been registered for GST then you are allowed to claim ITC. However, you must to do it within 30 days from the date you become liable for GST registration to avail the benefit. For a better understanding take a look at the example below.

Let’s say that you are a manufacturer of blankets and have crossed the threshold limit for GST registration on 5th November 2017. You have raw wool in stock worth Rs. 2 lakhs and have paid a GST @ 18% i.e. Rs. 36,000 on it. So, you must apply for GST registration before 5th December 2017 (within 30 days) if you want to claim the ITC i.e. Rs. 36,000.

  1. When you decide to register for GST on your own accord

Even if you have not crossed the threshold limit for GST registration and thus not liable, you can still apply for it voluntarily. By doing so, you automatically become eligible for claiming ITC.  However, in this case you can only claim ITC on inputs on the goods held in stock on the day before the registration has been granted. Let’s consider an actual example now.

GST Registration india

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Let’s say you run a shoe store and even though you are not liable for GST registration you apply for it voluntarily on 26th September 2017. Thus, you are eligible for ITC on inputs held in stock as on 25th September 2017.

Circumstances in which you are ineligible for ICT

There are certain circumstances that make you ineligible for claiming ICT. These are:

  1. When purchased goods and/or services are used for personal consumption

Say you bought electronics worth Rs. 1 lakh from the manufacturer and paid a GST of Rs. 18,000 (18%). However, you picked a TV worth Rs. 10,000 out of the complete order for yourself. Thus, you can’t claim for the GST paid on the full amount but only on:

Rs. 1,00,000- 10,000 = i.e. Rs. 90,000

Since GST on Rs, 90,000 is = 18% of Rs. 90,000= Rs. 16,200. Thus, you can only claim an ITC of Rs. 16,200 instead of Rs. 18,000.

  1. When goods are stolen, damaged, lost, or disposed of as free samples or gifts

Taking the previous example, if you have bought electronics worth Rs. 1 lakh from the manufacturer and paid a GST of Rs. 18,000 (18%), and if one TV worth Rs. 10,000 gets damaged to the point that it is useless then again you can only claim an ITC of Rs. 16,200.

  1. When payment has not been made within 3 months from the date of invoice of a certain service received by you

For example- say you have received marketing service from a certain company and they have charged you:

Rs. 30,000 (cost of service) + Rs. 5,400 (GST at 18%) = Rs. 35,400

If it has been over 3 months and you haven’t cleared the invoice then the ITC i.e. Rs. 5,400 will be added to your liability and cannot be claimed.

There are many other situations in which you cannot claim ITC. For instance, you cannot claim ITC on motor vehicles and other conveyance, cosmetic surgery, outdoor catering, food, and beverages, etc.

Any more questions regarding GST? Ask in comments below.

GST Checklist

GST Checklist

 

GST Checklist

The procedure for registration for GST system portal is as follows

 1 – Paperless procedure: The whole system of registration will be paperless; hence no hard copies shall be accepted by the department. Further, all the aforesaid registered taxpayers will need to visit the GST portal.

Further, it is mandatory for every entity to register for GST, if the turnover is more than 20 Lakhs – the exemption limit.

 2 – Provisional ID and password: Business entities must obtain provisional ID and passwords which are provided by your concerned state authorities.

3 – Documents and Information required: Be ready with these to get GST ID.

For the process to go hassle free for you, please ensure that the following information is handy.

  • Provisional ID as explained in point 2.
  • Password as explained in Point 2.
  • Valid email Address (it should not be off professional – Use your own email ID)
  • Valid Mobile Number
  • Bank Account number
  • IFSC code

Please ensure the following documents are available with you in digital format as per specification mentioned.

  • Proof of constitution of Business:
    • In a case of Partnership deed – Partnership deed (PDF or JPEG in the maximum file size of 1 MB).
    • In a case of others: Registration Certification of the business entity (PDF and JPEG format in a maximum file size of 1 MB).
  • Photograph of Promoters/Partners/Karta of HUF (JPEG format in a maximum file size of 100 KB).
  • Proof of appointment of authorized signatory (PDF and JPEG format in the maximum size of 1 MB).
  • Photograph of authorized Signatory (JPEG format in a maximum file size of 100 KB).
  • Opening page of Passbook/Statement containing the following information:
    •  Bank account number
    •  Address of branch
    •  Address of account holder
    •  Few transaction details  (PDF and JPEG format in maximum file size of 1 MB).

Documents may slightly vary for you, Please see as per your registered company.

Additional Documents as per your legally registered entity are mentioned below:

OPC (One Person Company):

  • MOA/AOA and Certificate of Incorporation of Company
  • Mobile no and Email Address of Applicant Director and Nominee Director

Private Ltd Company/Public Limited Company:

  • MOA/AOA and Certificate of Incorporation of Company

Partnership Firm:

  • Partnership Deed of Firm

LLP (Limited Liability Partnership):

  • LLP Agreement and Certificate of Incorporation

Trust/Society/Section 8 Company:

  • Bye laws / Moa of Organization

Looks cumbersome task, you can connect with NUMBERZ and enjoy hassle free registration with us.

 

GST and YOU

 

Our government has taken a paramount step in the direction of reforming the age-old tax regime. All taxes are to be subsumed into one amalgamated tax GST. The SMEs and startups are rejoicing, as the new taxation system is deemed to bring much-awaited relief to entrepreneurs and businesses.

According to the govt. GST will increase “Ease of doing business” and “Unleash the animal spirit” of startups. GST could pump the much-needed fuel that the startups are starving without. Let’s have a look at how GST is going to affect new and existing businesses.

Starting your business was never easier: In the initial stage of starting a business, every business need to have a VAT registration. In India, every state has its own taxation procedure. It could prove hassle- some for a person trying to start his new business. With 100 of problems already with the businessman, related to starting a business. This tiresome bureaucracy does not help one bit. But, come GST this will all be streamlined.

No distinction in sales and services: Businesses like restaurants have to pay VAT for sales and services separately. This makes the whole process of computing tax very complex. After the introduction of GST in April, both are to be calculated together as one.

A brief sector wise impact of GST:-

1.Automobile:

Positive: The current effective tax rate levied on this sector ranges between 30-47 percent. This is expected to mellow out to 20-22 percent. GST will spur growth in this sector, as the end user is expected to enjoy a reduced cost by 10 percent.
Negative: Commercial vehicle market may take a hit due to this. GST will eliminate local taxes, quicker passage through check posts, reduce logistic overheads. Improved efficiency with current capacity, operators may delay their expansion plans.

2.Consumer Durable:

Positive: Implementation of GST is big boost for consumer durable industry as also for makers of building materials. New tax regime will lower the end prices of products as manufactures are likely to pass on the price benefit. Also it will reduce the price gap between organized (branded) and unorganized (unbranded) market players. Reduction in logistic overheads will also lower the end cost

Negative: Manufacturers have to watch out for whether benefit is applied to excise duty exemptions zones or not. If not then production units in such zones will incur higher cost and will increase the cost of end product.

3.FMCG:

Positive: Companies will be saving substantially in logistics and distribution costs as there will be no need for multiple selling points. FMCG today pays nearly 24-25% tax including all components. Once GST comes in the picture it will be lowered to 17-19%.

Negative: As per recommendation of GST council, there is 40% tax on “demerit” products which includes aerated beverages and tobacco products. Prices may surge by 20%.food companies enjoying concessional rate of excise may be affected.

4. Cement:

Tax rate is expected to drop from 27-32 percent to 18-20 percent. So, companies in this sector should prepare themselves for increased demand and growth. A company currently running 550 depots can bring down to 100 depots.

 5. IT & ITES:

Positive: GST will eliminate multiple levies for IT companies. It will also allow deeper penetration of digital services.

Negative: Tax rate in this sector is 14 percent, after April it is expected to surge to 18-20 percent. Companies in this sector might prepare themselves to take hit revenue wise. Also IT companies mostly work on same project from different data centers. Hence each center will need to generate separate invoice for every different project they have taken.

6.Telecom

Positive: Cost of mobile handsets and laptop will eventually come down.

Negative: Call charges and data charges are bound to go up if GST regime exceeds 15%.

7.E-commerce

Positive: Reduction in logistic cost and whole country as one unified market will reduce the end cost for consumer. Cascading effect of taxes will be also be eliminated once GST is implemented.

Negative: TCS (Tax collection at source) will increase the administrative, documentation workload for eCommerce companies.

You need to prepare yourself for this historic change, whether you are on the gaining side or the losing side. If you are on the gaining side, tighten your belt as the demand is going to surge with the 7th pay commission and GST pumping disposable income into the economy. With GST everyone will be a winner in the long run.

Will GST change your business? We break it down

gst

What’s the big deal about the GST bill? For your business, it can mean huge, awesome changes!

It is the first overhaul in our taxation system since 1947, yep, that’s right the first major change since Independence. (It’s the 101st Amendment Bill- a fact for your history trivia buffs)

So, what it GST?

Let’s keep it simple- GST is the Goods and Services Tax.Right now, across India there are different taxes and tax rates. The GST Bill aims to say adios to all that confusion and implement a single tax and rate. Sounds good, so far, right? Let’s dive into how it’ll impact your business:

  1. Can the Indian Tax System be Tamed? Earlier you had to work with various tax departments of each state and compile your returns based on several regulations. With the new GST, these issues will be a thing of the past as all taxes will be integrated and the process of filing taxes is much simpler.
  2. Sales Tax, Service Tax, VAT- too many taxes?:Currently you have to pay many different taxes and it can take a lot of time to compute them separately. Now GST will combine all taxes and give you a uniform payment rate.
  3. Can you imagine a world of easy logistics?: When transporting your goods from one state to the next, your vehicles are now stopped at the borders for checks. Interstate movement will change drastically as these checks will be shorter and these taxes will be eliminated with the GST.
  4. Open, Click, Startup: All new businesses require a VAT registration to function and this can be complicated when operating in many states and following different procedures and fees. The introduction of GST will allow a single process of registration and help new startups enter and expand easier than before. With the Digital India and Startup India initiatives, you can also register your startup online.
  5. Who doesn’t love exemptions?: Businesses having to pay a higher VAT for a turnover of more than Rs. 5 lakhs will now be exempt upto Rs. 10 lakhs and above. If you have a higher turnover, fret not, here’s your reason to cheer as tax on turnovers between Rs. 10 to 50 lakhs will be considerably lower.

The GST is here to help your business grow and develop with the added advantage of exemptions and lower total taxes.

Here are the Tax rates:

The GST Council recently put forth a four-tier tax rate system of slabs fixed at 5%, 12%, 18% & 28%:

  • There are two standard rates of 12% and 18%
  • There will be a 5% tax rate on goods that fall under the category of mass consumption
  • The tax on essential items have been reduced while that on luxury goods will be higher
  • Roughly 50% of goods that fall under the consumer inflation basket will be kept at 0% to tackle inflation, while the items that will incur the 28% tax rate were previously taxed at 30-31%

Does it sound like too much for your business to keep track of? We have the simplest solution with Numberz! At Numberz, we are getting ready for new GST regime and at launch will be GST ready, and with your business can be ready too!