How to get Input Tax Credit Under GST

How to get Input Tax Credit Under GST

 

Enough has been said about what a significant reform GST will be. But if there is one thing that completely stands out about this new tax, it is – the mechanism of input credit under GST.

Here’s a quick check about you can expect from this post –

• For beginners – Don’t worry if you have never heard of ‘input credit’ before. We’ll start from scratch.
• For businesses – If you are a business, you may have already heard of VAT input credit, and you will soon know how it differs from GST input credit.

Part 1. What is input credit?

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.

Say, you are a manufacturer –

tax payable on output (FINAL PRODUCT) is Rs 450

tax paid on input (PURCHASES) is Rs 300

You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.

See here:

Input Credit in GST

Input Credit Mechanism is available to you when you are covered under the GST Act. Which means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here , registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

 

How to claim input credit under GST?

To claim input credit under GST –

• You must have a tax invoice (of purchase) or debit note issued by registered dealer

Note: Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.

• You should have received the goods/services

Note: Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.

• The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
• Supplier has filed GST returns

Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.

Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.

There’s more you should know about input credit –

• It is possible to have unclaimed input credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.

If tax on inputs > tax on output –> carry forward input tax or claim refund

If tax on output > tax on inputs –> pay balance

No interest is paid on input tax balance by the government

• Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
• Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
• Input tax credit is allowed on capital goods.
• Input tax is not allowed for goods and services for personal use.
• No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.

Part 2. Type of Taxes under GST

All existing taxes such as VAT, CST, Excise Duty, Service Tax, Entertainment Tax shall go away and GST will replace them.

There are 3 types of taxes under GST

SGST – State GST

CGST – Centre GST

IGST – Integrated GST

Now let’s understand how INPUT CREDIT works under GST

Suppose there is a seller Mr A and he sells his goods to Mr B. Here Mr B i.e the buyer will be eligible to claim the credit on purchases based on the invoices. Let’s understand how:

Step 1: Mr A will upload the details of all tax invoices issued in GSTR 1.

Step 2. The details with respect to sales to Mr B will auto populate/ get reflected in GSTR 2A, the same data will be pulled when Mr B will file GSTR 2 (i.e details of inward supply).

Step 3: Mr B will then accept the details that the purchase has been made and reported by the seller correctly and subsequently the tax on purchases will be credited to ‘Electronic Credit Ledger’ of Mr B and he can adjust it against future output tax liability and get the refund.

How To File GSTR-1

How To File GSTR-1

GSTR-1 prescribes the details to be provided by the taxpayer in relation to Outward supplies made to the buyer for the relevant period. GSTR-1 needs to be filed by every taxpayer except Compsition Scheme taxpayers, Non-Resident Foreign taxpayers, TDS deductors, E-commerce Operators and Input Servise Distributors as there are separate returns for them. This return is required to be filed by the 10th of subsequent month. (Example: GSTR-1 for the transaction month of April has to be filed before 10th May).

The government has notified new GST Return formats in this regard and removed the mandatory requirement to quote HSN codes for goods and SAC codes for services in each table. The GST Return Formats have been updated to ease the process and simplify compliance for taxpayers under GST.

The GST Council in its meeting on July 2-3 had shared a revised format for returns which are required to be filed under the GST regime.

GSTR-1 has a total of 13 headings. However, the taxable person need not worry as most of these will be prefilled. Before we dive deep into the various sections of this return, we need to understand certain terms. These are:

1. GSTIN – Goods and Services Taxpayer Identification Number
2. UID – Unique Identity Number for Embassies
3. HSN – Harmonized System of Nomenclature for goods
4. SAC – Services Accounting Code
5. GDI – Government Department Unique ID where department does not have a GSTIN
6. POS – Place of Supply of Goods or Services – State Code to be mentioned.

Below are the various section headings under GSTR-1:

1. GSTIN: Each taxpayer will be allotted a state-wise PAN-based 15-digit Goods and Services Taxpayer Identification Number (GSTIN). The format of proposed GSTIN has been shown in the image below. The GSTIN of the taxpayer will be auto-populated at the time of return filing.

• Name of the taxpayer: Name of the taxpayer will also be auto-populated at the time of logging into the common GST Portal.

• Gross turnover of the taxpayer in the previous FY: This information is required to be filed only in the first year of GST implementation. Next year onwards it will be auto-populated as carried forward balance of the previous year.

• Taxable outward supplies made to registered persons (including UIN-holders) other than supplies covered by Table 6: This head will hold the information about the details of all taxable supplies made by the registered taxable person. This head will cover complete details of Normal Taxable Supplies,  Supplies under Reverse Charge, and Supplies by way of an E-Commerce operator.

• Taxable outward inter-state supplies to unregistered persons where the invoice value is more than Rs 2.5 lakh: This head will cover the details of all taxable supplies made to an unregistered person in the different state. However, details are needed to be furnished only when the turnover exceeds Rs. 2.5 lakh.

• Zero-rated supplies and deemed exports: All type of zero-rated supplies, exports, deemed exports (supply to SEZ, EOUs) will be captured under this head.

• Taxable supplies (net of debit notes and credit notes) to unregistered persons other than the supplies covered in Table 5: All the taxable supply which are made to an unregistered taxable person and are not covered under table 5 needs to be furnished under this head. This will mainly cover taxable supplies to the unregistered person in the same state and below Rs. 2.5 lakh in other states.

• Nil-rated, exempt and non-GST outward supplies: All the other supplies whether nil rated, exempt or non-GST which has not been reported under any of the above needs to be reported under this head.

• Amendments to taxable outward supply details furnished in returns for earlier tax periods in Table 4, 5 and 6 [including debit notes, credit notes, refund vouchers issued during the current period and amendments thereof: Details of any kind of amendment in outward supply from previous tax period needs to be reported under this head. Any amendment in debit or credit notes also needs to be provided under this head.

• Amendments to taxable outward supplies to unregistered persons: Any amendment in details of taxable outward supplies to unregistered persons from previous tax periods needs to be made under this head.

• Consolidated statement of advances received/advance: This head will include all the details of advances received and adjusted under the current period. This will result in increase/decrease of GST liability. Any kind of amendment in advances from earlier tax period also needs to be reported here.

• HSN-wise summary of outward supplies: Here the taxable person will consolidate all his supplies across HSN codes. This section will also reflect high-level information on supplies made and IGST, CGST and SGST collected against it.

• Documents issued during the tax period: This head will include details of all invoices issues in a tax period, any kind of revised invoice, debit notes, credit notes etc.

Amendment of section 44AE of Income Tax Act 1961 AY 2017-18

Amendment of section 44AE of Income Tax Act 1961 AY 2017-18

Existing provisions of section 44AD

The existing provisions of section 44AD of the Act, inter-alia, provides for a presumptive income scheme in case of eligible assesses (individuals, HUFs and firms excepting LLPs) carrying out eligible businesses. Under this scheme, in case of an eligible assessee engaged in eligible business having total turnover or gross receipts not exceeding 2 crore rupees in a previous year, a sum equal to 8% of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum declared by the assessee in his return of income, is deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains of business or profession".

Proposed Amendment-lower presumptive profit rate of 6% on turnover realized in account payee cheque or DD or ECS on or before due date for filing ITR

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, it is proposed to amend section 44AD of the Act by reducing the existing rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in sub-section (1) of section 139 in respect of that previous year. 

In other words, if a credit sale is made then payment must be received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account on or before the due date u/s 139(1) in order to qualify for the lower presumptive rate of 6%. However, the existing rate of deemed profit of 8% referred to in section 44AD of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

This proposed amendment (proposed new proviso to section 44AD) gives effect to clarification in Press Release dated 19-12-2016 wherein it was clarified that "In order to achieve the Government's mission of moving towards a less cash economy and to incentivize small traders / businesses to proactively accept payments by digital means, it has been decided to reduce the existing rate of deemed profit of 8% under section 44AD of the Act to 6% in respect of the amount of total turnover or gross receipts received through banking channel / digital means for the financial year 2016-17."

So, it appears turnover/gross receipts received through banking channel /digital means other than those specified in proposed new proviso

Turnover or gross receipts received in cash/ other than an account payee cheque or account payee DD or ECS

First of all, minimum presumptive income of 8% has to be shown instead of 6% in respect of such turnover or gross receipts. Secondly provisions of proposed new section 269ST read with section 271D shall apply in addition if the transaction is effected on or after 01-04-2017. There is no exemption from proposed new section 269ST for section 44AD assesses unless Central Government notifies exemption under section 269ST. The Finance Bill, 2017 proposes to insert new section 269T relating to "Mode of undertaking transactions". Proposed new section 269T provides that no person shall receive an amount of three lakh rupees or more,—

(a)  in aggregate from a person in a day;

(b)  in respect of a single transaction; or

(c)  in respect of transactions relating to one event or occasion from a person,

otherwise than by an account payee cheque or account payee bank draft or electronic clearing system through a bank account.

It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply. Transactions of the nature referred to in section 269SS are proposed to be excluded from the scope of the said section. 

It is also proposed to insert new section 271DA in the Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner. It is also proposed to consequentially amend the provisions of section 206C to omit the provision relating to tax collection at source at the rate of 1% of sale consideration on cash sale of jewellery exceeding five lakh rupees. These amendments will take effect from 1st April, 2017.

Note: Assesses availing presumptive scheme under section 44AD must keep in view the provisions of section 269ST as also provisions of section 206C(TCS) while accepting cash payments/advances from customers.