How SMEs can take advantage of input Tax credit which they couldn’t take earlier?

Let’s start with an example on how to take an Input Tax Credit.

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.

Now he can take his input tax credit.

AcTouch.com has been developed with Indian GST structure with its new complexities. Our customers will be supported during this transition process.

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