GST rates: All you need to know about input tax credit

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Many services under the GST will be taxed at 18 percent slab including key services like finance. Finance Minister Arun Jaitley however, maintained that the higher tax rates will not be a burden on consumers. He assured that service providers will get input tax credit and benefits of the same will be extended to customers as well. Confused? Here is all you need to know about how you get to save despite higher tax rates for select services.

GST rates: All you need to know about input tax credit

The mechanism of input tax credit is a key factor under the GST. Jaitley warned that the anti-profiteering clause will come into effect if benefits are not given to consumers.

What it means

Input tax credit helps manufacturers reduce taxes on output/products. If a manufacturer has paid taxes while buying inputs, taxes will be reduced for the output that has been made using the taxed input. Under the GST, if you are a registered manufacturer, supplier, agent, e-commerce operator, aggregator, you are eligible to claim Input credit for tax paid by you on purchases.

How to claim Input tax credit

  • To claim this feature you should be in possession of Tax Invoice or Debit or Credit Note or Supplementary Invoice issued by a supplier registered under GST Act.
  • You should have received the indicated goods and/or services
  • Returns in Form GSTR-3 have to be filed by supplier
  • The tax charged on the purchases should have been paid to the government by the supplier
  • Input credit can be availed only if the supplier has deposited tax collected from you
  • Every input credit claimed by you will be matched and validated before it reaches you.
  • All your suppliers must be GST compliant

What happens in the case of unclaimed input credit?

  • Due to tax on purchases being higher than tax on sale, you may have unclaimed input credit
  • In such cases, you are allowed to carry forward or claim a refund.
  • If the case is vice versa, you can pay the balance

Features you need to remember

  • No interest is paid on input tax balance by the government
  • Input tax credit cannot be claimed on a purchase if invoices are more than one year old.
  • The 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 that are exempted
  • Input tax credit is allowed on capital goods as well
  • 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 a relevant annual return, whichever is earlier.

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