Goods and Service Tax (GST) came into effect from 1st July 2017 in India and replaced all pre-existing indirect taxes in the country like VAT, customs, excise, state excise, etc. This GST India guide is meant to help businesses of all kinds to follow and be compliant to GST rules.
To make navigation in to this GST guide easier for you, we have also provided a table of contents below. If you do not want to read the whole GST guide and want guidance on only a particular topic, you can simply click on that topic in the table.
Introduction to GST
In simple words, GST is the one indirect tax for the whole of India, and it is charged at every point of sale. Which means if the same product is sold multiple times (eg. Wholesaler sells it to the retailer and then the retailer sells it to end-user), GST will be charged on it every time. But the good thing is that when submitting the collected GST to the government, the retailer can reduce the amount of GST he has already paid to the wholesaler.
Well! If you are new to GST, I am sure you must have understood only half the concept by reading the above paragraph. Worry not, I will explain it to you using an example.
For this example, let’s consider You own a footwear shop. You buy a sports shoe from a wholesaler called Jacob for Rs 100. Now, you will also need to pay a GST of 5%. That means you are paying a total amount of Rs 100 + Rs 5 = Rs 105 to Jacob. Out of this entire amount, Jacob will keep Rs 100 and submit the GST amount (Rs 5) to the government.
Ragini is a student and looking to buy a new sports shoe for her next school games. She comes to your shop and buys the same shoe for Rs 160. Now, Ragini will also need to pay 5% GST. So, she is paying a total amount of Rs 160+ Rs 8 = Rs 168 to you.
Now, out of this entire amount of Rs 168, you will keep Rs 160, but will not pay the entire GST amount (Rs 8) to the government. You will deduct the Rs 5 that you already paid to Jacob and submit the rest amount (Rs 3) to the government.
This concept is also called Input Tax Credit System. In the above example, Rs 5 is the input tax credit that you have received. Let’s elaborate this concept further.
GST guide for input tax credit in India
You must have understood the concept of Input Tax Credit System that works in India by the above example. Now to claim that input tax credit, there are some systems that you need to follow.
First, a business needs to file GST return by submitting all the GST invoices that it has raised to its customers and all the GST invoices that it has received from its suppliers every month. To understand this, let’s extend the above-mentioned shoe shop example.
Let’s assume, in the April month of this year, you made a total sales of Rs 1,00,000. GST rate on footwear is 5%. Which means, you also collected a total GST amount of Rs 5,000 from your customers.
On the other hand, you purchased goods worth Rs 60,000 in the same period from your suppliers and paid GST of Rs 3,000 to them. This Rs 3,000 will be your GST input credit for the period.
Hence, you will need to pay a GST amount of Rs 5,000 – Rs, 3000 = Rs 2,000 to government, while filing your GST return for that particular period.
Here, one thing you should note that if any of your customers is buying shoes for business purpose (e.g. distributing into employees), he would also be able to claim input credit for the GST amount that you have charged from him. To ensure that your customer gets input credit without any problem, you should ensure to mention his GST number on the invoice. (More on the invoices will be explained further)
GST input tax credit refund
In the above example, you saw how you can deduct the GST amount you have already paid to your suppliers from your overall GST liability. But, what if you have already paid more GST than you have received. In this case, you can claim for GST input tax credit refund.
Let’s assume, In the May month, you made a total sales of Rs 1,00,000 from your shoe shop, and collected GST worth Rs 5,000. In the same month, you made purchase of Rs 1,50,000 from your suppliers and paid a total GST of Rs 7,500. Here, your input tax credit is Rs 7,500 is more than your GST liability of Rs 5,000. hence, you can claim a GST input tax credit refund of Rs 7,500 – Rs 5,000 = Rs 2,500.