Questions and Answers
What conditions must be met to avail the input tax credit according to the text?
Pay tax as mentioned in the rules.
What does the GST apply to in terms of the supply chain according to the text?
From raw material procurement to final consumer purchase.
When does the tax liability arise for imported goods in India?
Upon importation into the customs territory of India.
Which forms need to be confirmed for the input tax credit mentioned in the text?
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Which rule do you need to be eligible under for deduction according to the text?
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What is the primary purpose of input tax credit?
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In India, what is a requirement for businesses to claim input tax credit under GST?
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How is the input tax credit verified in India's GST system?
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What is the Goods and Services Tax (GST) in India?
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Which of the following is NOT a condition for claiming input tax credit in India?
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What is the approximate rate of input tax credit that businesses can claim in Australia?
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Study Notes
GST Overview
The Goods and Services Tax is a value added tax levied on most goods sold for domestic consumption and services, other than those exempted by law from the tax. It indirectly impacts all businesses and individuals involved in buying and selling of goods and services within its scope. In India, this was introduced via the Central GST Act, State GST Act, Union Territory GST Act and Integrated GST Act.
Input Tax Credit
Input tax credit is the amount of tax paid on goods and services which can be claimed back when these products are used to produce more goods or services for sale. This mechanism allows businesses to recover taxes they have already been paying.
In countries like Australia, companies have been able to claim credits against some input tax for decades, with the current rate being around 1/11th of the price. To qualify, businesses must prove that their input tax is related to the production process of their goods or services.
In the case of India, businesses can claim GST credit only after invoices are matched by both parties through the matching engine of the Government's portal. Once verified, the system will automatically allow the GST authorities to release the credit into the company's account. However, there are certain conditions that need to be met before a business can claim input tax credit:
- The taxable person is registered under the CGST, SGST, UTGST, IGST, or CTT Laws.
- He has filed his return for the month of September of the financial year immediately preceding the financial year in respect of which he intends to avail the said credit.
- He has paid tax to the extent mentioned in the rules.
- He is eligible for deduction under rule 38(1) or rule 39(1) of the CGST Rules, 2017 as applicable to him.
- The amount of credit shown in FORM GSTR-2A has been confirmed in FORM GSTR-3B.
Applicability
The GST applies to the entire supply chain, starting from procurement of raw materials up until the final consumer makes the purchase. For example, if a manufacturer purchases raw materials from another company under GST registration, it is considered as a supply of goods and thus subject to GST.
The GST also covers imported goods and services, although specific rules apply for each country and region. In India, for instance, the tax liability arises upon importation of goods into the customs territory of India.
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