GST Updates

Simple Example on How Input Tax Credit will Work between IGST, CGST and SGST

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Let’s assume Tax Rate in GST is 20%, out of which CGST is 10% and SGST is 10%. IGST leviable on Inter State sales is 20% i.e. (Aggregate of CGST @ 10% and SGST @ 10%).
a) Levy of Tax under GST: Two Cardinal Rules for Levy of Tax under GST
  1. Tax Leviable in an Intra State Transaction i.e. Within Same State: CGST and SGST
  2. Tax Leviable in an Inter State Transaction i.e. From one State to another: IGST
b) Input Tax Credit under GST: 4 Cardinal Rules for Input Tax Credit under GST
  1. Input Tax Credit of IGST allowed against IGST, CGST and SGST.
  2. Input Tax Credit of CGST allowed against CGST and IGST.
  3. Input Tax Credit of SGST allowed against SGST and IGST.
  4. Input Tax Credit of CGST against SGST and vice versa is not allowed.
Situation 1: A (Maharashtra) sold goods to B (Rajasthan)
Transaction: A in Maharashtra sold goods to B in Rajasthan for Rs. 100. As this is an Inter-State Transaction IGST will be charged on bill @20%. Therefore, A would charge Rs 20 as IGST.
How A would deposit Tax: A would deposit Rs 20 as IGST under the government head assuming he does not have any Input Tax Credit.
Situation 2: B (Rajasthan) sold goods to C (Rajasthan)
Transaction: B in Rajasthan sold goods to C in Rajasthan for Rs 150/-. As this is an Intra-State Transaction CGST and SGST would be charged on bill @10% each. Therefore B will charge 10% CGST and 10% SGST in bill as taxes on sale price of Rs 150 i.e. Rs 15 as CGST and Rs 15 as SGST.
How B would deposit Tax: At the time of payment of taxes by B, B would adjust Rs 20/- paid as IGST to A as follows
a) Out of Input Tax Credit of Rs 20 available, Rs 15 would be adjusted against CGST of Rs 15 and nothing would be required to be deposited.
b) Remaining Rs 5 of IGST would be adjusted against Rs 15 of SGST and balance of Rs 10/- of SGST would be deposited under the Government Head of SGST.
Situation 3: Goods sold by C (Rajasthan) to D (Rajasthan)
Transaction: C in Rajasthan sold goods to D in Rajasthan for Rs 200/-. As this is an Intra-State Transaction CGST and SGST would be charged on bill @10% each. Therefore C will charge 10% CGST and 10% SGST in bill as taxes on sale price of Rs 200 i.e. Rs 20 as CGST and Rs 20 as SGST.
How C would deposit Tax: At the time of payment of taxes by C, C would adjust Rs 15 of CGST and Rs 15 of SGST paid to B follows
a) Out of Input Tax Credit of Rs 15 available for CGST, Rs 15 would be adjusted against liability of CGST of Rs 20 and Rs 5 would be deposited under the Government Head of CGST.
b) Out of Input Tax Credit of Rs 15 available for SGST, Rs 15 would be adjusted against liability of SGST of Rs 20 and Rs 5 would be deposited under the Government Head of SGST.
It has to be noted here that entire tax of Rs 30 paid to B cannot be adjusted against one liability as CGST and SGST cannot be adjusted against each other. Therefore, CGST would be adjusted against CGST and SGST would be adjusted against SGST.
Situation 4: D (Rajasthan) sold goods to E (Delhi)
Transaction: D in Rajasthan sold goods to E in Delhi for Rs 250/-. As this is an Inter-State Transaction IGST would be charged on bill @ 20%. Therefore D will charge 20% IGST in bill as taxes on sale price of Rs 250 i.e. 50 as IGST.
How D would deposit Tax: At the time of payment of taxes by D, D would adjust Rs 20 of CGST and Rs 20 of SGST paid to C against output liability of Rs 50 of IGST and Rs 10 would be deposited under the Government Head of IGST.
1 Comment

1 Comment

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    MANOJ GUPTA

    September 7, 2016 at 9:25 am

    Good example clarifying ITC

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