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Input tax credit under scanner
Why is it in the news ?
- Given the decline in GST revenues, tax officials are likely to examine the high usage of input tax credit (ITC) to set off tax liability by businesses.
- The issue of high ITC was flagged at the meeting of the Group of Ministers (GoM) which was set up by the GST Council to look into the reasons for revenue shortfall being faced by a large number of States.
More about the Tribunal
- GST revenue has averaged around Rs.96,000 crore per month so far this fiscal and this reflects the cash component being deposited by businesses.
- According to sources, availing ITC ideally should not result in loss of revenue.
- However, there could be possibility of misuse of the provision by unscrupulous businesses by generating fake invoices just to claim tax credit.
- Under the present dispensation, there is no provision for real time matching of ITC claims with the taxes already paid by suppliers of inputs.
- The matching is done on the basis of system generated GSTR-2A, after the credit has been claimed. Based on the mismatch highlighted by GSTR-2A and ITC claims, the revenue department sends notices to businesses.
Input Tax Credit
- Input tax credit is the credit manufacturer's received for paying input taxes towards inputs used in the manufacture of products.
- Similarly, a dealer is entitled to input tax credit if he has purchased goods for resale.
- So, at the time of paying tax on output, you can reduce the tax you have already paid on inputs.
Example:
you are a manufacturer –
tax payable on output (FINAL PRODUCT) is Rs 500
tax paid on input (PURCHASES) is Rs 300
You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 200 in taxes.
Source
The Hindu.