Input Tax Credit

There are less than 4 months left for the implementation of GST on July 1. GST would streamline the process of tax payments and refunds, bringing in transparency and accountability. The GST Council, appointed by the government of India, has an uphill task of setting the rates so that the tax revenues of both the center and state are not affected. The first step towards decoding the rates under GST was to decide on the revenue neutral rate (RNR). Revenue neutral rate is calculated on the basis of total revenue desired and the total consumption expenditure of the country.
The Subramanian committee studied three different approaches in order to figure out the revenue neutral rate. According to the latest recommendation from the Subramanian committee, the revenue neutral rate should be fixed around 18%. Currently, there are four different tax rates expected under GST depending on the type of good/service. The four rates are 5%,12%,18%, and 28%.
There is a significant change in the calculation of tax under GST. CGST, SGST, IGST are the three new terms which are introduced under the new tax laws. CGST refers to Central Goods and Service Tax, SGST refers to State Goods and Service Tax, and IGST is the Integrated Goods and Service tax, which would be charged on the inter-state goods/services. Goods/services sold or resold within the state would be liable to pay only CGST and SGST.

This table shows the tax liability under different circumstances-

CIRCUMSTANCES CGST SGST IGST
Goods sold from Raipur to mumbai NO NO YES
Goods sold within Raipur YES YES NO
Goods sold from Pune  to Mumbai YES YES NO

Utilization of  credit available under electronic input tax credit ledger :-

Payment of Tax Under GST

Input tax credit which was not claimed for up to one year from the date when tax invoice was raised shall be considered as expired.

Currently, the refund for the excess of VAT/CST paid is claimed annually. Refund on the excess of excise duty paid is paid through the duty drawback scheme. There are a lot of delays under the current system in providing the refund for excise/VAT/CST.

GST would improve the system of calculation, application, and processing of the refund. Refunds would be calculated for each major head (CGST, SGST, IGST) separately. An application form has to be filed on the GSTN portal for claiming the refund. calculation of refunds would become automated & uploaded electronically.

As stated in the GST Model Law, “If any tax ordered to be refunded under section 48 to any applicant is not refunded within 60 days from the date of receipt of application under sub-section (1) of that section, interest at such rate as may be specified in the notification issued by the Central or a State Government on the recommendation of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said subsection till the date of refund of such tax”. The processing time for a refund application has been kept as sixty days under GST model law but it could be as early as two weeks.