Over past year Goods and Service Tax rules have grabbed much concern of taxpayers in India. Introduction of GST is treated as one of the major reforms in Indian economy. However, the thing that attracted a point of discussion is the system of service tax credit or input tax credit within GST. Here input tax credit suggests you may reduce the amount of tax you contributed in advance while making purchase while paying taxes on sales. To be more specific, you can get tax credit for advance tax payment on the inputs and reduce the taxes contributed on the inputs from the taxes being paid on outputs.

Concept of Tax Credit for the Advanced Payment

The concept of tax credit is not completely new in India. Similar idea existed before the introduction of Goods and Service Tax but now with GST scopes have been broadened. At pre-GST time it was impossible to claim credit for luxury tax, central tax on sales, entry tax and so on. Moreover, service providers and manufacturers could not even claim central excise duty. But now, as all other taxes are being subsumed into GST, there is no restriction in claiming input credit. Nevertheless, claiming of input tax credit is one tricky business. You cannot claim input credit to every form of inputs. Rules may vary from one state to another. Input credit is the main pillar of GST. It is one of the major concerns of every registered people.

Here is an instance of the working of tax credit within GST. If the tax you suppose to pay on the finishing product is ₹500 and you have already made an advance tax payment on the purchase of ₹300 then the tax credit you can claim is ₹300 and the ultimate payment you make is ₹200 only.

Time Perimeter to Avail Service Tax Input Credit under GST

Every registered person can avail tax credit facility under GST but within a limited time period. You can claim tax credit only within 1yr from the date of issue of the tax invoice. Check out the conditions when input tax credit could be claimed on stock/ finished/ semi-finished goods:

Conditions Beginning Day of Claiming Service Tax Input Credit
When an individual tries for registration/ bound to register/ received registration From the day the person is responsible to pay tax
When voluntary registration taken by an individual From the day of registration
When no tax being paid by a registered person under composition tax scheme From the day the person is responsible to make tax payment

 

Apart from the above cited conditions, people in other cases must claim for input credit in earlier of below mentioned times:

  • While filing for yearly return
  • The filing date of monthly GST return for the month of September of coming financial year

Computation of Input Tax Credit

Presume that the manufacturer purchases primary raw materials for ₹500 and secondary raw materials for ₹100 and paid GST 18% and 28%, respectively. That means, he makes an advance tax payment of ₹90 on the primary raw material and ₹28 on secondary raw materials at the time of purchase that sum up to ₹118. Suppose, he decides to put up for sale the final product for ₹900 and GST applied for the product at 18%. So, the cost of the final product becomes ₹1,062, including ₹162 GST. The manufacture is, thus, collecting ₹162 in the form of  GST on the sale of the final product and he made advance tax payment of ₹118 at the time of purchase. Therefore, the manufacturer could claim tax credit of ₹118 on the inputs and makes tax payment of ₹44 to the government.

How to Claim Service Tax Input Credit?

You can easily claim service tax credit if you can fulfill the conditions cited below:

  • You should be a registered individual.
  • Service tax input credit can only be claimed if services and goods are being used only for the purpose of business.
  • Tax credit could be claimed for taxable exports.
  • An individual could credit input credit in electronic ledger.
  • You need to have documents including,
  • Tax invoice
  • Debit note
  • Supplementary invoice
  • You may also claim input credit if you have got the original goods and service receipt with you.
  • All types of GST returns are needed to fill.

Once you have got all the necessary documents, you can claim you tax credit. Claim process of service tax credit:

  • The seller uploads all tax invoices as subjected in GSTR-1.
  • All sale details will be reflected in GSTR-2A. Same details will be reflected when the buyer uploads GSTR-2. The details uploaded by the buyer are data related to the purchase details.
  • Once the sale details are acknowledged by the buyer, purchase input credit will be credited to the electronic credit ledger of the buyer.