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  1. GST: Input tax credit limit on existing stock raised to support transition period sales

GST: Input tax credit limit on existing stock raised to support transition period sales

GST Council has raised the limit on input tax credit against excise duty payment to 60% from 40% of GST liability on items with tax rate above 18%, bringing some respite on sale of inventories stocked up before the implementation of the new tax regime on July 1.

By: | Updated: June 5, 2017 11:41 AM
Businessmen had cut inventory of goods as earlier rules provided for claiming tax credit for only up to 40% of their total GST liability against the excise duty paid on purchases before July 1 without the original excise payment receipt. (Image: Reuters)

In a major relief to traders and businessmen across the country, the GST Council has increased the limit on input tax credit to 60% against excise payments from 40% earlier on items with tax rates at 18% and above without excise payment receipts, bringing some respite on sale of inventories stocked up before the implementation of the new tax regime on July 1.

The input tax credit refund against excise on items with tax rates below 18% would remain at 40% of the total GST liability. Further, the council also ruled that entire 100% input tax credit against excise can be availed on high-value items above Rs 25,000 with a chassis number. It must be noted that the input tax credit refund against is already at the full value in cases where the excise payment receipt is available.

Distributors and dealers had begun cutting down on the stock of goods lying with them ahead of the implementation of GST, as the earlier proposed rules provided for them to claim tax credit for only up to 40% of their total GST liability against the excise duty already paid on the goods purchased before July 1 without furnishing the original excise payment receipt.

However, with the increase in the limit of the input tax credit that they can claim, the companies could sigh a breath of relief as it would cushion the impact on sales in the month leading up to the levy of the new tax.

The GST Council, which met on Saturday to decide the tax rate on remaining six items, has finalised all the pending rules, including those on transition and returns forms, for the implementation of the most sweeping tax reform in the country since independence in less than a month from now. The council also decided the tax rate to be levied on the six items, including gold, bidis, biscuits, textiles, apparels and footwear. All the states have agreed to the roll out from July 1, bringing certainty to the implementation of the new regime as scheduled.

Earlier last month, the GST Council, tasked with tasked with framing rules for implementation of most sweeping tax reform India has ever seen since independence, finalised the rate of tax on over 1,200 items and most of the services, while deferring decision on six items including gold to today’s meeting.

The council has proposed four tax slabs at 5%, 12%, 18% and 28% under GST, while exempting essential or daily consumption items and services from tax levy, such as fresh meat, fish, chicken, eggs, milk, curd, natural honey, fresh fruits, vegetables, flour and bread, and healthcare and education services. Other than this, it levied cess over and above the 28% tax on certain luxury goods and sin goods. The GST Council kept 81% of the items in the first three tax brackets, ie, up to 18%. The 12% and 18% tax bracket together account for two-thirds of all items.

GST seeks to unify the entire country into a single market with only one value-added tax levy on all the goods and services across states at the point of consumption, subsuming up to 16 different taxes and levies that are imposed at present. This is expected to make the movement goods across the state borders smoother, faster and easier, though some experts have raised concerns over the complications that could arise out of a multiple tax-slab structure.

(Originally published on www.financialexpress.com on Saturday, June 3; updated on Monday, June 5)

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