Input Credit Set Off Under GST – Explanation With Examples

Dual Tax Scenario Under Goods and Service Tax : Illustrations

The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all interState supply of goods and/or services. The CGST /SGST and IGST are payable on the same value at the rates specified in the Schedules to the respective Acts.

Type of TransactionTax to be levied
Intra-State Transactions1. CGST (Central Goods and Services Tax)

2. SGST (State Goods and Services Tax )

 

Inter-State Transactions IGST (Integrated Goods and Services Tax)

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT. While the location of the supplier and the recipient within the country is immaterial for the purpose of CGST, SGST would be chargeable only when the supplier and the recipient are both located within the State.

CGST and SGST : Taxability and Input Credit Set Off

Illustration I:

Suppose hypothetically that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not actually pay Rs. 20 (Rs. 10 + Rs. 10 ) in cash as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST paid on his purchases while for SGST he can utilize the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Illustration II

Suppose, again hypothetically, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services to a company manufacturing soap also located within the State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service. He would be required to deposit the CGST component into a Central Government account while the SGST portion into the account of the concerned State Government. Of course, he need not again actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to set-off this liability against the CGST or SGST paid on his purchase (say, of inputs such as stationery, office equipment, services of an artist etc). But for paying CGST he would be allowed to use only the credit of CGST paid on its purchase while for SGST he can utilise the credit of SGST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

5 thoughts on “Input Credit Set Off Under GST – Explanation With Examples

  • WE HAVE ALREADY REGISTERED IN GST PORTAL BUT WE HAVE MISTAKELY NOT MENTIONED THE CENTRAL EXCISE REGISTRATION NO AND SERVICE TAX REGISTRATION NO IN GST PORTAL.WE HAVE MENTIONED ONLY THE VAT NO & CST NO.THEN WHAT TO DO.

  • Both the examples are for Inter State Sale. What about Intra State Sale. There is no such example.

  • Suppose a trader buy a product X from a supplier ‘A’ with HSN code say 1 and a product ‘Y’ from a supplier ‘B’ with HSN code 2. After repacking he is selling both products X+Y together to his customer. What HSN code should he put on his invoice?. Please note that combined product(A+B) is not defined in HSN category.
    Rgds
    Nitin L S
    9374423948

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