If a person is using ITC(input tax credit) under GST, it means that when they are paying the tax for their output, they can reduce the tax they already paid for their inputs away from this amount and pay the remainder. ITC can only be claimed for business purposes and cannot be claimed for goods and services that have been used for personal use. It also cannot be used for exempt supplies.
With the new GST system in place, the way that we have viewed the tax system in India has completely changed. A consumption-based tax, GST has replaced all of the indirect taxes that have been levied on goods and services normally by the Indian government. For e-commerce companies, the rules are slightly more complicated. GST made the welcome change of reducing taxes for small businesses.
Why is ITC good for online sellers
ITC is a great advantage for online sellers in many ways. They can use the input tax credit to reduce their taxes. This will also prevent them from losing money unnecessarily for the sake of their taxes. In the case that you have just spent a certain amount of money in GST on the materials needed to make a product, you will also charge a higher rate of GST when you sell that product to a customer.
Under the GST scheme, Input Tax Credit(ITC) can be used by online sellers to reduce their tax burden. The seller will only have to pay the difference of the tax that was paid on input and output as tax to the government. This allows online sellers to have an excellent opportunity to save money that they can invest in the success of their business. It is important that sellers understand the concept of the ITC feature before they proceed to use it.
Normally, you would have to pay this amount to the government. However, using the ITC, you can deduct the original GST that you charged to your customer from what the government expects from you. This means that you will now pay a smaller tax to the government.
Requirements to get ITC under GST
- The applicant must have a tax invoice that has been issued to them by a registered dealer
- The applicant must have already received the goods or services for which they are trying to get the ITC for
- The tax that has been applied to the applicant’s purchases must have been paid to the government by the supplier in cash
- The supplier of the product or service must have filled in the GST returns
Documents required to claim ITC under GST
- A copy of the invoice from the supplier of the products or services
- A copy of the applicant’s invoice(who is not a registered dealer and is a recipient of the goods and services)
- A debit note issued by the supplier of the products or services if the tax charged in an invoice has been found to be of a lesser amount than that which is normally payable for such products or services
- A bill of entry which will be needed for an integrated tax on imports
- A credit note issued by an ISD(Input Service Distributor-business that distributes taxes on the basis of the tax invoices received for the products or services)
- A bill of supply that has been provided by a dealer who is trying for a compensation scheme
How to claim ITC
In the form GSTR-3B, normal taxpayers must report the amount of ITC in their monthly GST returns section. ITC can be claimed in GSTR-3B to a degree of 20% of the ITC mentioned by the suppliers in the GSTR-2A return. The person who wishes to claim the ITC should carefully check GSTR-2A before they go to GSTR-3B.
Reversal of ITC(Input Tax Credit)
These are some of the situations in which ITC can be reversed:
- If the invoice has not been paid within 180 days of its issue
- If a credit note has been sent by the seller to the Head Office
- If inputs have been used for personal purposes
- If capital goods have been used for personal purposes
Role of InstaSpaces
Our team here at InstaSpaces is extremely excited to work with you towards helping you successfully claim ITC in GST. Since the world is rapidly changing, we understand how important it is for online sellers to be able to adapt to the constant changes that they may face in their environment.
Being able to work in a cost-efficient manner is incredibly important towards ensuring that online sellers do not lose out on money to taxes unnecessarily. Understanding all the new rules that are present under GST may be difficult for you at first but you need not fret as we are here to guide you patiently.
We will assist you in understanding the nuances of what you have to do in order to claim the IST. As a company that specializes in GST registration and helping people find new virtual offices, we are extremely experienced at handling complicated documentation for our clients. We are ecstatic at the prospect of working with you to help you claim your ITC successfully and watch your business prosper too. Please trust in us as we go on this journey together.
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