An input tax credit is paid on the purchase of goods, by a business registered under GST law, and then used to decrease tax liability on the sale of the goods. Using input tax credit businesses can claim the credit on the basis of GST paid on purchases. The GST tax system allows for every purchase by a business to match every sale by it as well, seamlessly integrating the use of input tax credit.
When claiming GST input tax credit, the two businesses involved need to be registered entities under GST law. The input tax credit is claimed by the recipient business (RB), who purchases the goods from the supplier business(SB). The two businesses then reconcile their purchases and sales.
To give you a better idea, let’s consider the above two businesses - RB and SB.
While claiming an input tax credit, the portal will request for certain
When the tax invoice has been issued for a period of less than a year
When the tax invoice has been issued for a period of more than a year
There are two parties involved, the supplying business (SB) who sells goods and the receiving business (RB) who buy the goods.
So if RB buys goods worth Rs. 20000 from SB, at GST rate 12.5%, RB pays input tax of Rs. 2500/-
Now, when RB sells the same goods at Rs, 25000/-, including output tax at 12.5%, the final price becomes 25000 + 3125 = Rs 28,1250/-
RB can claim an input tax credit of Rs. 3125 - Rs. 2500 = Rs.600/-
Learn more About GST Registration And Its Online Process.