Everything You Need to Know about Input Credit Taxation. Input credit means that when you pay tax on your output, you can deduct the tax you already paid on your inputs. Assume you are a manufacturer, and the tax payable on your product (FINAL PRODUCT) is Rs 450. The amount of tax paid on input (PURCHASES) is Rs 300. You can claim INPUT CREDIT of Rs 300 and just pay Rs 150 in taxes. Input tax credit meaning is not as complicated as it sounds!
GST Input Credit
When you are subject to the GST Act, you have access to the Input Credit Mechanism. That is, if you are a registered GST manufacturer, supplier, agent, e-commerce operator, aggregator, or any of the persons specified above, you are qualified to claim INPUT CREDIT for tax paid on your PURCHASES.
How do I obtain GST input credit?
To claim GST input credit-
- You must have a tax invoice (or debit note) issued by a registered merchant.
- You should have received the products/services by now.
Note: If items are received in lots or instalments, credit will be provided against the tax invoice upon receipt of the final lot or instalment. Note: If the recipient fails to pay the value of the service or the applicable tax within three months of the invoice’s issuance and has already claimed input credit based on the invoice, the credit will be applied to his output tax due, together with interest.
- The provider has deposited/paid the tax charged on your purchases to the government in cash or by claiming input credit.
- The supplier has submitted GST returns.
- The invoice was posted by the supplier in their GSTR-1 and appears in the recipient’s or buyer’s GSTR-2B. Click here to learn more about how to fill form 10e.
The most revolutionary GST reform is that input credit is only available if your supplier has remitted the tax he collected from you. As a result, before you can claim an input credit, it must be matched and validated. As a result, in order for you to claim input credit on purchases, all of your suppliers must also be GST compliant.
There is more to know about input credit
- Unclaimed input credit is a possibility. Because the tax on purchases is higher than the tax on sales. In such a circumstance, you may carry forward or request a refund.
- Only in exceptional situations, as defined in Section 18, can input tax credit be claimed on purchase invoices that are more than a year old (1). The term begins on the date of the tax invoice.
- Because GST is levied on both products and services, input credit can be claimed on both (excluding those on the exempted/negative list).
- Capital goods are eligible for input tax credit.
- Personal use products and services are exempt from input tax.