Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.
EXAMPLE
Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).
METHOD OF UTILISATION OF ITC
The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.
The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.
We can see how Input Tax Credit is used from the below example and table:
Personal Accounts: The accounts of persons, firms, companies, etc. are personal accounts. There is a further classification to personal accounts- Accounts of Natural Persons: The transactions relating to individual human beings fall under this category. For Example, accounts of Joseph, Richard, MorrRead more
Personal Accounts: The accounts of persons, firms, companies, etc. are personal accounts. There is a further classification to personal accounts-
Note: When any Prefix or Suffix is used before/ after any nominal account head, such account is classified as Representative personal account under traditional approach.
For Example, Salary A/c is a nominal account whereas salary outstanding A/c is a personal account as the word outstanding is being used as a prefix to Salary A/c.
The Accounting rule for Personal Account is –
Debit the Receiver of the benefit.
Credit the Giver of the benefit.
Real Account: The transactions relating to tangible things i.e. the things that can be seen, touched and physically exchanged and the intangible things that cannot be seen, touched but the presence can be felt comes under this category. For Example, tangible things like Cash, goods, building, machinery, etc. and intangible things like goodwill, patent, trademarks, etc.
The Accounting rule for Real Account is –
Debit what comes in.
Credit what goes out.
Nominal Accounts: The transactions relating to losses, expenses, incomes and gains comes under this category. For Example, Rent paid, wages paid, commission received, interest paid/ received, etc.
The Accounting rule for Nominal Account is –
Debit Expenses and Losses.
Credit Gains and Incomes.
Some Common Examples under the three heads are
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