Input Tax Credit

  • July 14, 2021
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Input Tax Credit

Subject: Economy

Context: Year-long crackdown on tax evasion, the GST authorities have unearthed over Rs 35,000 crore of tax fraud committed by misuse of input tax credit provision under the Goods and Services Tax (GST) regime.

Concept:

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs. Say, you are a manufacturer – tax payable on output (FINAL PRODUCT) is Rs 450 tax paid on input (PURCHASES) is Rs 300 You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes

Central Board of Indirect Taxes and Customs (erstwhile Central Board of Excise & Customs) is a part of the Department of Revenue under the Ministry of Finance, Government of India.

It deals with the tasks of

  • formulation of policy concerning levy and collection of Customs, Central Excise duties, Central Goods & Services Tax and IGST,
  • prevention of smuggling and administration of matters relating to Customs, Central Excise, Central Goods & Services Tax, IGST and Narcotics to the extent under CBIC’s purview.
  • The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise and Central GST Commission rates and the Central Revenues Control Laboratory.

GST

  • The GST aims to streamline the taxation structure in the country and replace a gamut of indirect taxes with a singular GST to simplify the taxation procedure.
  • It has been established by the 101st Constitutional Amendment Act.
  • It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
  • GST subsumes

At the Central level, the following taxes are being subsumed:

  1. Central Excise Duty
  2. Additional Excise Duty
  3. Service Tax
  4. Additional Customs Duty commonly known as Countervailing Duty
  5. Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

  1. Subsuming of State Value Added Tax/Sales Tax
  2. Entertainment Tax (other than the tax levied by the local bodies)
  3. Central Sales Tax (levied by the Centre and collected by the States)
  4. Octroi and Entry tax
  5. Purchase Tax
  6. Luxury tax
  7. Taxes on lottery, betting and gambling.
  • GST is essentially a consumption tax and is levied at the final consumption point. The principle used in GST taxation is Destination Principle.
  • It is levied on the value addition and provides set offs. As a result, it avoids the cascading effect or tax on tax which increases the tax burden on the end consumer.
  • There is a provision of GST Council to decide upon any matter related to GST whose chairman in the finance minister of India. It will approve all decision related to taxation in the country. It consists of Centre, states and UTs with legislature. Centre has 1/3rd voting rights and states have 2/3rd voting rights. Decisions are taken after a majority in the council.
  • GSTN is registered as a not-for-profit company under the companies Act. It has been formed to set up and operate the information technology backbone of the GST. While the Central (24.5%) and the state (24.5%) governments hold a combined stake of 49%, the remaining 51% stake is divided among five financial institutions
economy Input Tax Credit