The basic reason for the implementation of ‘Goods and Service Tax’ is the removal of the cascading effect i.e. the effect of the tax on tax. Uninterrupted and seamless chain of the input tax credit is the key feature of the Goods and Service Tax.

Under the current article we would understand different levies of tax under Goods and Service Tax, the manner of utilization of input tax credit, list of documents on the basis of which input tax credit can be claimed and illustration of an input tax credit.

DIFFERENT LEVIES OF TAX UNDER GOODS AND SERVICE TAX

CGST Central Goods and Service Tax (also known as Central Tax) Levied on an intra-state supply of goods / services.
SGST State Goods and Service Tax (also known as State Tax) Levied on an intra-state supply of goods / services.
IGST Integrated Goods and Service Tax (also known as Integrated Tax) Levied on an inter-state supply of goods / services.
UTGST Union Territory Goods and Service Tax (also known as Union Territory Tax) Levied on an intra-union territory of goods / services.

MANNER OF UTILISATION OF INPUT TAX CREDIT UNDER GST

TYPE OF CREDIT CAN BE FIRST UTILISED FOR PAYMENT OF CAN BE FURTHER UTILISED FOR PAYMENT OF
CGST CGST IGST
SGST SGST IGST
UTGST UTGST IGST
IGST IGST CGST and then SGST / UTGST

The credit of CGST i.e. central tax cannot be utilized for payment of SGST i.e. state tax / UTGST and credit of SGST i.e. state tax / UTGST cannot be utilized for payment of CGST i.e. central tax.

DOCUMENTS ON THE BASIS OF WHICH INPUT TAX CREDIT CAN BE CLAIMED –

1. Supplier’s invoice;

2. A Debit note issued by the supplier;

3. Document issued by an input service distributor (ISD);

4. Bill of entry / similar document prescribed under the customs law;

5. Bill of supply issued by the supplier;

6. Invoice issued by the recipient along with proof of payment of tax;

7. Revised invoice.

ILLUSTRATIONS OF INPUT TAX CREDIT UNDER GST

Mr. A of Maharashtra sells goods to Mr. B of Gujarat at INR 1000. Since it is an inter-state sale, IGST would be charged say @5% i.e. INR 50. Mr. B will able to avail input tax credit of INR 50.

Mr. B of Gujarat sells the above goods to Mr. C of Punjab at INR 1500. Since it is also an inter-state sale, Mr. B would charge IGST @5% on INR 1500 i.e. INR 75. Let us understand the position of Mr. B through the table below –

Position of Mr. B

Particulars Amount
Amount of IGST payable by Mr. B INR 75
Available input tax credit of IGST with Mr. B INR 50
Net IGST payable by Mr. B INR 25

In the above example, Mr. C is eligible to avail IGST credit of INR 75.

Now, suppose Mr. C of Punjab sells goods to Mr. D of Punjab at INR 2000, since the same is an intra-state sale, Mr. C would charge CGST @2.5% i.e INR 50 and SGST @2.5% i.e INR 50. The position of Mr. C is explained in the below mentioned table –

PARTICULARS IGST CREDIT CGST TAX PAYABLE SGST TAX PAYABLE
Amount of CGST and SGST payable by Mr. C INR 50 INR 50
Amount of IGST credit available to Mr. C INR 75
Utilization of IGST credit, first towards CGST and then towards SGST. INR 50 INR 25
Balance tax payable by Mr. C INR 25

Mr. D would be able to avail CGST credit of INR 50 and SGST credit of INR 50.

More Under Goods and Services Tax

One Comment

  1. KT says:

    In the article above at Sr. No. 5 Bill of supply issued by the supplier is considered as DOCUMENTS ON THE BASIS OF WHICH INPUT TAX CREDIT CAN BE CLAIMED, however BOS can be issued for the exempted supplies in which case there won’t be any question of availing ITC.

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