Let’s take an example to understand the What is GST Payable and Credit .
Suppose a manufacturer, ABC Pvt. Ltd., purchases raw materials worth Rs. 10,000 from a supplier at a GST rate of 18%. So, the total cost of raw materials, including GST, will be Rs. 11,800 (Rs. 10,000 + 18% GST).
Now, ABC Pvt. Ltd. processes the raw materials and manufactures a finished product, which it sells to a customer at a price of Rs. 20,000. The applicable GST rate on the finished product is also 18%.
Hence, the GST payable by ABC Pvt. Ltd. will be calculated as follows:
- GST payable on sales = 18% of Rs. 20,000 = Rs. 3,600
However, ABC Pvt. Ltd. can claim a GST credit on the purchase of raw materials, as it is a registered GST taxpayer. So, the GST credit available to ABC Pvt. Ltd. will be:
- GST credit = 18% of Rs. 10,000 = Rs. 1,800
Therefore, the net GST payable by ABC Pvt. Ltd. will be:
- GST payable = GST on sales – GST credit = Rs. 3,600 – Rs. 1,800 = Rs. 1,800
So, ABC Pvt. Ltd. will deposit Rs. 1,800 as GST liability with the government.
In summary,
GST payable is the amount of GST that a taxpayer needs to deposit with the government, while GST credit is the credit that a taxpayer can claim for the GST paid on their purchases. The taxpayer can use the GST credit to offset their GST liability and deposit only the net GST payable amount with the government.
