How to claim ITC(Input tax credit) in GST

How to claim ITC in GST

Input tax credit (ITC) is one of the most prominent features of the newly introduced GST tax system in India. ITC gives registered taxable businesses the benefit of reduced taxation. This is because the tax they pay on sales is reduced as a result of the tax they have already paid on purchases.

Though the concept of ITC has been in existence even before the introduction of GST, it has been modified. It is now possible to claim input tax credit for central sales tax and since all the various forms of tax are now subsumed under GST, it is possible to cross-credit one tax to the other especially for IGST. For instance, you can utilize the credit you get from paying VAT on other forms of tax, say luxury tax.

To reduce your tax liability and keep your business floating, it is important to take advantage of ITC. However, there are certain conditions that you must meet to claim your ITC.

Rules to follow to Claim your ITC

  1. Both you and your supplier must be registered taxable persons.
  2. You must possess a valid tax invoice, debit note, bill of entry, bill of supply and other prescribed document.
  3. You must have received the goods or service.
  4. Your supplier has paid the tax charged on the goods or services to the government.
  5. The supplier has filed GST return on the supply.
  6. If the goods are in instalment, the credit will be paid only when the last instalment is paid.
  7. You must pay the consideration for the supply received within 180 days to enjoy input tax credit otherwise any ITC paid shall be added to your output tax liability with interest.
  8. You can claim input tax credit on taxable exports or zero-rated supply goods.

Other Points to Note in Order to Claim ITC

  • You cannot use ITC on SGST paid in one state to pay for SGST in another state.
  • You cannot claim ITC for goods you purchase for personal consumption or without the intention of reselling.
  • Taxpayers who are beneficiaries of composition scheme cannot enjoy ITC.
  • A bank or any non-banking financial institution can claim ITC proportionate credit or 50% of the eligible tax credit.
  • Your GSTR-3 return must match with your supplier’s GSTR-3 return for you to claim ITC, as any mismatch due to duplication or excess input declaration on the part of the recipient, then the excess input will be considered as output liability for the recipient, which shall be paid with interest. To ensure accuracy in your invoice or carry out sales and purchase reconciliation, consider utilising online accounting software.
  • For newly registered taxpayers, those that changed from composition dealers to normal dealers and from exempt to taxable supplies, they cannot avail ITC after one year of the date of issuance of tax invoice relating to such supply.

You must know that to claim your ITC, the input tax must be paid through the Electronic Cash/Credit Ledger. Therefore, you can credit your ITC in your electronic credit ledger and utilize it later.

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Impacts Of GST On The Indian Economy

Impacts Of The GST On The Indian Economy

Small business accounting software have been considered effective by businesses in India. We are also witnessing an exodus towards the GST accounting software due to the new tax reforms. A good online accounting software must be able to eliminate the difficulty experienced in integrating business accounts. GST India accounting software has been considered by economic experts as a great Quickbooks alternative. There are several impacts of the Goods and Sales Tax on the Indian economy and they are as follows;

  1. E-Commerce and Online Marketplaces

Tax collected at source (TCS) will be collected by online stores like Amazon and Flipkart at a fixed rate of 1% and this amount will be paid to sellers on their site. This will make online shopping costlier.

  1. Increased production and Reduction of Tax Burden

The previous structure of taxation galvanized with numerous tax clauses, obstructed producers from manufacturing at their optimum capability and stifled growth. GST efficiently takes care of this challenge by providing tax credit to the producers.

  1. Elimination of undue storage expenses

A number of tax barriers like toll plazas and check posts often results in the wastage of unpreserved and perishable items in transit. This resulted in an increase in costs due to the increasing needs of buffer stock and the cost of storage. A solitary taxation system like GST expels the disadvantages of this roadblock.

  1. Growth in Real estate

Due to the inputs credit benefits that most builders stand to get under the new tax structure, raw materials will be available at a reduced price. Major players in real estate like Quikr and Proptiger are looking to pass this cost advantage to property buyers.

  1. Transparency and accountability

The GST promises more transparency and accountability in the system because the tax payers will know the exact amount of taxes levied on them and on what bases are they being charged.

  1. Increased government revenues

GST serves as an alternative source of income for the government through a means of extending the tax base.

  1. Credit facilities

GST provides credit for the taxes paid by manufacturers in the production chain. This will serve as an encouragement for producers to purchase raw materials from different certified dealers. The potential effect of this is that more suppliers and vendors will be enticed and brought in under the scope of an affordable taxation.

  1. Elimination of export custom duties

GST directly affects the Indian economy by expelling the custom duties applicable to exports. The country’s competitiveness in the global markets will rise based on the lower cost of transaction.

  1. Long run economic benefits

The merger of Central and State taxes into a single tax expects GST to significantly improve the Indian economy by eliminating the stress of double taxation and making it easy for industries.

Final Words

Despite the economic challenges faced by even the world’s biggest economies, India has thrown the hat in the ring by embarking on a couple of strategic plans to fortify and bolster its economy. The Goods and Service Tax (GST) is one of the undertakings of the Indian economy that is supposed to stimulate the much desired economic growth by transforming the previous indirect taxation towards the uninhibited flow of goods and services.

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Understand GST with these 25 Frequently Asked Questions (FAQ)

Understand GST with these 25 Frequently Asked Questions (FAQ)

Question 1: What is GST?

Answer: GST simply means Goods and Service Tax. It is a destination-based tax on consumption of goods and services in India.

Question 2: What is place of supply in GST?

The place of supply or place of consumption is what determines whom the tax is accrued to.

Question 3: Who bears the burden of GST?

The tax burden is borne by the final consumer. GST is in the form of an indirect tax on the supply of goods and services.

Question 4: Which tax does the GST subsume?

The dual GST subsumes the taxes and levies on items previously collected by the central and the state. It will be levied simultaneously both by the central, in the form of intra-state supply of goods (CGST) and the state (SGST/UGST). The tax levied by the central on the inter-state supply of goods and services is called Integrated GST (IGST).

Question 5: What are the exempted items under GST?

All formerly taxable items by the central and the state are taxable except alcohol, petrol and petroleum products, electricity and real estate.

Question 6: How can I register my business with GST?

Go to the GST website on any of your devices and do the registration.

Question 7: What is GSTIN?

GSTIN is the identification number given to every registered supplier.

Question 8: Can I register multiple businesses under one GSTIN?

Yes. It is possible to register multiple businesses under the same GSTIN as long as they are in the same state.

Question 9: Do e-commerce suppliers pay GST?

Yes. An electronic commerce operator is mandated to register for and pay GST irrespective of the value of the supply made by them.

Question 10: What are the various forms of returns on GST?

The returns are varied from GSTR-1 to GSTR-11.

Question 11: When is the GST filing return due?

The due date for filing return is based on the form of GST return a taxpayer subscribes to.

Question 12: In what way does one get penalized for non-filing or late filing?

You pay a late fee of Rs. 100 for every day of delay after the due date to a maximum of five thousand Rupees. Refusal to file attracts a penalty ranging from 10% of the tax not paid or ten thousand Rupees.

Question 13: What is composition scheme?

This is a scheme under GST, which allows small taxpayers whose turnover is less than Rs.1.0 crore to pay tax at a fixed rate of turnover.

Question 14: How does GST benefit small business?

GST makes tax filing convenient for small businesses. It also gives better Input Tax Credits (ITC) and makes inter and intra state tax filing uniform.

Question 15: As a small business owner, do I need accounting software for my GST filing?

Yes. You need small business accounting software for easy tax filing and access to GTN.

Question 16: How does online accounting software benefit small business?

It becomes easy to input and collates your invoice with accounting software. Accounting software also calculates the tax payable on each supply for you and tax return filing becomes automated.

Question 17: Will the department be able to read my accounting software?


Question 18: What is ITC?

Input tax credit is a means of reducing the tax liability by lowering taxes paid on inputs from taxes paid on output.

Question 19: Do taxpayers who benefit from the composition scheme enjoy ITC?


Question 20: What is HSN and SAC code?

HSN refers to Harmonized System of Nomenclature. It is an 8-digit code use to classify the amount taxable on different goods. Service accounting code (SAC) is used to classify services.

Question 21: What is the reverse charge mechanism?

This is a case where the recipient of goods and services is liable to pay the tax instead of the supplier.

Question 22: Does the reverse charge applicable to only goods?

No. the reverse charge applies to both goods and services

Question 23: What is PAN?

PAN simply means Permanent Account Number. This is required for anyone to register for GST except the non-resident taxable person.

Question 24: Who is a non-resident taxable person?

A person residing outside India but making a taxable supply in India is a non-resident taxable person.

Question 25: Can I cancel my GST registration?

Yes. However, you must meet certain conditions to discontinue using GST.


GST Reports (GSTR-1, GSTR-2 and GSTR-3B Explained)

In order to follow all the GST requirements, everyone needs to file GST returns from time to time. These returns are important to get a clear idea about income details that are further useful for the calculation of annual tax that is required to be paid to the government.

There are three important GST report types that you may be required to fill depending upon your type of business. Here we have highlighted a few essential details about filing each one of them to ease the struggle for the beginners.

GST Accounting Software

GST Reports; GSTR-1, GSTR-2 and GSTR-3B Explained:

It is vital to know the amount you should pay as your tax liability and if you are eligible for any refund on your GST. GST report or return is a mechanism that summarizes the GST received and paid by you. It shows how your GST was calculated and ensures credit flow to the proper recipient.

GST returns is categorized into different categories, there are GSTR-1, 2, 3, 4, 5…11. Some of these GST returns are further broken down, but the primary concern of this article is on GSTR-1, GSTR-2, and GSTR-3B.

GSTR1 or Sales Report

All registered taxable suppliers file this tax return. It comprises details of sales (also known as outward supplies) of taxable goods and services. It is paid monthly or on a quarterly basis depending on your rate of turnover. If your turnover rate is above Rs.1.5 crores, you will file GSTR-1 on a monthly basis, but if it is below the amount, then you will file it quarterly.

All registered taxpayers must file GSTR-1 except for the composition dealers, input service distributors, non-resident taxable persons, and persons liable to collect either TCS or TDS. The penalty for late filing is Rs.50 and Rs.20 per day.

Who needs GSTR 1?

All the registered dealers need to file GSTR 1. It is considered mandatory irrespective of sales and transactions of the particular month. It clearly means that even if the dealer receives no transactions or sales in any month, still he has to file GSTR 1. However, the entities and individuals are exempted from this report. Here is the list of people who need not file GSTR 1:

  • In case if your business receives some invoices for the services that are accessed by other branches, you are considered as an input service distributor as per GST norms.
  • Those who have registered their business under composition scheme specified by GST, you need to file this report. Note that businesses that have an annual turnover of around 1.5 crores can work under this scheme right from 1st April 2019.
  • The suppliers of retrieval services, database access and online information.
  • You belong to the category of a non-taxable person if you import services and goods from outside India or taking responsibility for business on behalf of some non-resident Indian.

In order to file GSTR 1; you must have a genuine and valid Goods and Service Tax Identification Number. The sign-in credentials for the portal, valid digital signature certificate and Aadhar number are also important. One should also have access to the mobile number that is mentioned in the Aadhar card.

GSTR2 or Purchase Report

Just as the GSTR-1 mentioned above deals with outward supplies, the GSTR-2 deals with inward purchases of taxable goods, services or both. GSTR-2 is a monthly inward supply report, which can also include reverse charge transactions. It is used to do buyer-seller reconciliation, also known as invoice matching, by the government. It is compulsory for every registered taxpayer to file GSTR-2 monthly but for businesses with an annual turnover below 1.5 crores, the tax will be paid quarterly. Suppliers must file this return even when no purchases are made as there is a penalty of Rs.100 per day to a maximum of Rs.5000 for late filing.

As GSTR-2 is auto-populated base on the details of the GSTR-1, it takes less time to file, and with your online accounting software, it is even simpler. You must note that if you do not file GSTR-2, you cannot proceed to file GSTR-3.

Who needs GSTR 2?

GSTR 2 is applicable to almost every registered person except the non-residential taxable person, input distributor, and e-Commerce operator.

In case if you import goods and services; you are liable to file GSTR 2. The process of filing GSTR 2 is quite easy; you can complete all formalities by using the common portal. Many businesses prefer to use GSTR 2 just to ensure that vendors are following tax compliant and are registered to the GSTN.

GSTR3B or Tax Summary Report

This is a non-revisable monthly tax filing by registered suppliers. For each GSTIN a taxpayer possesses, he must file a GSTR-3B. This means that if you have multiple GSTIN, you must file multiple GTR-3B. All casual/normal taxable persons must file this tax return every month. In fact, if there is no transaction in a particular month, “Nil” returns must be filed. The refusal to file this tax return as at when due attracts a late fee penalty of Rs.50 per day for normal taxpayers but for taxpayers with Nil tax liability, the penalty is Rs.20.

However, non-resident taxpayers, suppliers who enjoy composition scheme, input service distributors, database access or retrieval services (OIDAR), online information suppliers, Tax deducted at source (TDS) deductor, and Tax collected at source (TCS) collector do not need to file GSTR-3B.

Who needs GSTR 3B?

GSTR 3B is for all taxpayers that are registered as per the GST regime. Even if your monthly transactions are not significant or are nil; then also you need to file GSTR 3B forms on a regular basis. However, people that are working as composition dealer; input service distributor; supplier of retrieval services, database access or online information or the non-resident taxable Indians need not file GSTR 3B.

It is required to provide all the available input tax credit (ITC), a summary of the information of purchases and sales, tax payable, as well as tax paid in the report.

For a thorough, fast and easy filing of your tax returns, consider using a GST accounting software and follow the step-by-step procedure of tax filing on any of your devices in real time. One can take help from Cas to file these forms or follow instructions given on the portals online.


GST Benefits for Small and Midsize Business

GST Benefits for Small and Midsize Business

The amount of tax liability of small and medium size businesses can lead to the bankrupt of such businesses. The introduction of GST in India seeks to avert such problems and others that may arise due to the tax structure in the country.

With the introduction of Goods and services tax (GST), the final consumer bears the tax burden and not the supplier. In fact, small business with aggregate turnover of up to Rs.5 lakhs and Rs.10 Lakhs are exempted from paying tax. Apart from this, there are other benefits GST avail to small and midsize businesses.

  • It makes Business Start-up Easier

. Before the introduction of GST, is important to carry out VAT registration in the state where the business is carried out. For a business to carry out transactions in different states, the owner must understand and comply with the different tax structures for each state. The complexity of the procedure for starting a business in India can discourage any entrepreneur from putting his/her idea to bear. It is easier to start a business now as GST subsumes both the state and the central tax structures.

  • It Simplifies Tax Filing

As GST integrates the different states tax system as well as the central tax, it brings about consistency in the tax structure. GST allows small business to know their tax liability and ensures smoother tax filing. This promotes prompt payment of tax and as a result reduces the chance of compiling tax liability. The use of electronic ledger makes invoicing simpler especially for small businesses that use small business accounting software.

  • It Reduces Tax

Small and Midsize businesses enjoy reduced or no tax at all under GST. Businesses with low aggregate turnover can apply for exemption or become composition dealer. Although the concept of tax relief is not new, it is now expanded and uniform across states. Furthermore, businesses that deals with both goods and services, like restaurant businesses, do not need to pay for separate taxes for goods and services.

  • Opportunity for Expansion

Midsize businesses that are not under the composition scheme enjoy input tax credit (ITC) and this invariably lowers their tax rate. Small and midsize businesses can now carry out inter-state supply and purchase without the cascading taxes and tax regulations of different state. This allows a manufacturing firm based in one state to have production plant in another state and pay the same tax.

  • It allows Business Access to Loan

Access to capital can make or mar the growth of small businesses. Through GST, small businesses have thorough tax records to show their financial capability. These records can be presented to banks and other mending institutions to grant loan as a display of the credibility of the business and show the credit-worthiness of a small business.

  • Speedy Transportation of Goods and Services

With the elimination of checkpoints and double taxation, the delivery of goods and services from one state to another is now faster. Small businesses that wish to expand to another state do not have to worry about logistics costs and time especially regarding tax.  Speedier inter-state delivery of goods and services can go a long way in reducing the production cost and enhance the performance of small businesses.

Take advantage of the many benefits GTS provide for small and midsize businesses to simultaneously reduce your tax liability and expand your business base.

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GST Filing Process for Small Business

The economy in India underwent  the greatest tax reformation with the introduction of GST (or Goods and Services Tax), which is more or less a destination-based tax reporting structure. According to the latest policies introduced in India’s economic landscape, small-scale businesses can now increase their realms by capitalizing on the prospects of GST. Gone are those days when small and medium-sized businesses were compelled to file multiple taxations; today, with the implementation of the composition scheme, the burden that waa so long hovering over the businessmen’s mind has now been eliminated. This implies that filing for a GSTR is inevitably compulsory, and every business, irrespective of its size and sales must submit its report in due time(if no sales or purchases were made, there will be a NIL report).

The different paradigms of small and medium sized businesses

Generally  large businesses often have enough resources at their disposal to manage tax related matters, whereas small businesses lack enough capital to maintain adequate accounting information and tax liability. The income tax department have introduced  a more straightforward method for these large portion of small industries known as Presumptive method, where the income is calculated as per gross receipts of the business.Usually, most small businesses have an annual turnover of 50 lakhs or less; and with a configuration fluctuating within this window, paying the tax liability through composition scheme becomes incredibly easy. However, even though all the previously-variable taxes have now been combined into one, small-businesses is lagging in funds and technological expertise that qualifies as indispensables in this procedure. Ideally, simplification of the process requires businesses to depend on GST software that would automatically calculate and generate invoice and at the same time, keep an accurate tab of the tax.

Tax return filing obligations

Regular taxpayers file their GST returns after each month; but, for those under the composition scheme, filing GST returns quarterly, is compulsory. Small and medium sized business owners with less than 2 cr turnover evey year have chosen the presumptive income tax scheme depicted under section 44AD, section 44ADA, and section 44AE. These labels are required to file their tax returns via the ITR-4 form. But, those owners who have avoided the presumptive income scheme and yet have profits that exceeds 2 crores in 12 months’ time will have to file through the ITR-3 form. In the following segment,  we will be mentioning the obligations of taxpayers who file under GSTR-4, GSTR-4A and GSTR-9A schemes.

Small dealers must their expense history, split between GST registered and non- registered entities. The entire turnover or gross receipt as per GST and GSTIN must be logged while filing ITR-4. The details of both CGST and SGST/IGST paid on purchases, sales and expenses must be specified under profit and loss account, by business owners who are filing their returns under ITR-3, ITR-5 and ITR-6. You must also know thar if any amount of input tax credit remains unclaimed as of 31st of the year, must  be mentioned under “Schedule OI” (Other Information) of the parallel ITI form. In all, all regular businesses alike should file two monthly returns and a single return.

But, the composition dealers will be needed to fill out returns separately. A composition dealer who attracts a turnover of more than 1 crore annually should pay the tax on total sales and that too at a specific rate. An interesting reminder here is that the dealer pays taxes under reverse charge purchases from the unregistered sellers and import of good/services. But these very dealers have the privilege of absorbing benefits from compliance and returns that are not upto the mark with tax payment at inexpensive rates.


The GSTR-4 can be equated with GSTR-1, as both of the scheme have same string of requisites and implications. Because small-scale businesses are not eligible for input tax credit, they are spared from filing the GSTR-1 and GSTR-2. In the GSTR-4, the taxpayer is expected to declare a precis of his outward supplies with accompanying details such as tax payable and tax payment. The return is to be filed on the 18th of every quarter end, stepping beyond which will opens doors to a lump sum as the penalty fee and inability to file in the next quarter.

There is a total of 13 sections on the GSTR-4 form. After logging in to the portal, your name, GSTIN and aggregate turnover will be automatically published on the page. Nevertheless, sections of information including outward supply, taxable inward supply, debit notes, imported goods and services and credit notes can be corrected, if there appears to be a mistake. But, once all the details are confirmed, and the form is signed and submitted, there is no going back until the next quarter.


All the seven parts of this form are auto-drafted by the GST system. It contains the credentials of the taxpayers, details of the debit and credit notes received, inward supplies received from a registered taxable person and the modifications necessary from the earlier tax periods. Apart from the rudiments, the TDS credit received must also be updated on tbe form.


GSTR-9A concerns the annual returns for the compounding tax payers. For the other regular taxpayers, they must file under GSTR-9A form. This annual return calls to be filed on the 31st of December every year and the repercussion of refusing to file it attracts Rs. 200 each day. There are 5 parts of in this form, namely:

  • Details of the taxpayer
  • Summary of quarterly returns registered in GSTR-4 for outward and inward supplies across the year.
  • Crucial particulars of the tax paid in the financial year including late or penalty fees.
  • Inputs about the modifications made in the preceding financial year.
  • Details of the refunds, credit reversed, demands and other penalties, if any.

These forms and their regulations apply for small businesses with tax turnover of less than 50 lakhs; nonetheless, if this bar is crossed, small businesses need to fill the GSTR-1,2,3B monthly and GSTR-9 annually.