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.
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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.
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.