How SMEs can take advantage of input Tax credit which they couldn’t take earlier?
Let’s start with an example.
Suppose RAVI paid Rs 100,000 to purchase an item and he paid Rs 10,000 as a tax (Purchase tax 10%). Now he has to include the same in his cost of the product because he does not have an opportunity to collect this paid TAX (Rs 10,000).
He will add 5% on the entire cost of Rs 110,000 (Rs 100,000+ Rs 10,000) as selling price. So Rs 115,500 is his selling price.
Before GST Implementation.
TOTAL COST Rs. 100,000
TAX (10%) Rs 10,000
TOTAL Cost of Product Rs 110,000
Add PROFIT 5% Rs 5,500
Selling Price Rs. 115,500
A 10% tax on this selling price is Rs 11,550 and he has pay this to Govt.
After GST Implementation
The cost of the product is Rs 100,000 and GST paid (10%) is Rs 10,000. Here we can recover GST of Rs 10,000 from SALE With following Example.
Purchase Price is Rs 100,000
Tax Paid (10%) on Purhcase is Rs 10,000
Sale price (5% additional) is Rs 105,000
GST tax collected is (10%) Rs 10,500
The balance is his GST liability to pay GOVT is (Rs 10,500- Rs 10,000) = Rs 500
Here he can recover entire amount of Rs 10,000 From his sale but in the previous case we didn’t had an opportunity to collect entire amount from his sale.