Input Credit

Input Credit means, if you’ve paid tax on purchase of any good(s) or procurement of any service(s) and – when selling your goods or services you’re required to further pay tax – you can set off your tax payment liability with the tax already paid by you when you

procured your inputs.

Example: You are ‘special muffin manufacturer’. You buy a whole lot of special ingredients to manufacture your muffin – say you bought multi flavoured syrups for the flavours – you had to pay tax (indirect you see!) to procure the syrups.

Now you used these syrups and made your muffins (this is value addition – without the process of baking, adding of ingredients there would be no muffin) – you sell them – but you got to pay tax on the ‘manufactured’ muffins!

So you paid tax when you bought the ingredients (input tax) and when you manufactured/ sold them you paid tax again (output tax) – here, you will get the credit of the input tax paid to decrease your liability of output tax.

This is the Input tax credit system simplified for understanding.

 GST will be levied at every stage of value addition.

 Value addition would mean – applying effort on the goods or services to make worth more. By undergoing a certain process, or set of activities – ‘value’ is being added to the goods or services.

 Under GST – the rate of tax – ‘Revenue Neutral Rate’ or RNR – is set to not exceed 27% combining both central and state tax rates.

 It will bring more people under the indirect taxes net thereby increasing revenue and also dealing with tax evasion and black money issues.

 Meanwhile a higher rate of Service Tax @ 14%, adding Education Cess to Excise Duty and taking off items from the exempted list are nothing but measured steps towards applying GST – which is slated for a 1st April 2016 release – after having missed numerous past deadlines!

 More specifics on GST will become available as the Government will approach the 2016 deadline so keeping abreast with the development is important.