Input Tax Credit
According to the model GST Law, a taxable person can accumulate credits of taxes paid and carry them forward in a return. With the introduction of the GST, the last set of credits will have to be transferred. To do this, you must satisfy the conditions mentioned below to take credit for the opening stock.
- The stock should be held in the form of raw materials, semi finished goods or finishes goods and must be used for taxable supplies
- The purchaser of goods should be in possession of a tax paid invoice (original not necessary)
- The purchaser should have received the goods and services
- The opening stock register should be maintained and filed on the GST portal within 30 days of the date of commencement of GST
- The purchaser can claim credit for only the stock which has been purchased in the last one year. It mean the purchase invoices can be no more than 12 months from the date of transition to GST.
- The purchaser must have filed all the prescribed returns at least for the past 6 months in order to claim credit for the opening stock.
- Input tax credit on opening stock can be claimed only when you supply (sell) the stock, collect GST and remit it to the government. On the stock which has been sold you can claim 40% credit in your electronic ledger account as shown on the GST portal
- The above mentioned 40% tax credit is calculated on the CGST or SGST portion. For example if the given commodity rate is say 18% and the CGST portion is say 9%, you will be entitled to credit of 40% on the 9% of CGST paid.
- A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit.
- You must file your last return for Excise, VAT, Service tax carefully in order to avoid loss of eligible credit.
Credit for VAT Paid
Let’s take AB Pvt Ltd as an example. Their VAT Form 100 shows credit/excess amount carried forward (as on 30th June, 2017) to be Rs 5,000. This implies that AB Pvt Ltd’s input VAT credit balance stands at Rs 5,000.
Now, can this be carried forward? The answer is yes, if AB Pvt Ltd fulfils some conditions. First that input VAT of Rs 5,000 must be shown in the returns and secondly GST approves of the same as input tax credit. If the above are satisfied, the input VAT will be carried forward as SGST credit.
Credit for Excise Paid
Let’s try and explain this with the help of an example. Let’s consider a company as ABC Pvt Ltd. Now, ABC Pvt Ltd is a two-wheeler manufacturer located in Bangalore and registered under the excise and Karnataka VAT. Now, say as of June 30, 2017, ABC has a CENVAT closing balance of Rs 25,000. The question here is if this balance credit can be carried forward? Yes, it can be. This will be allowed if ABC satisfies two aspects. One that its returns filed under ER-1 reflect the CENVAT balance. Secondly, the same is allowed as input tax credit in GST. For ABC, this CENVAT will be carried forward as CGST credit.