Let’s take an example to understand the adjustment of credit in case of CGST, SGST, and IGST:
Suppose a manufacturer, ABC Company, purchases raw materials worth Rs. 50,000 from a supplier in Gujarat at a CGST rate of 9% and a SGST rate of 9%.
The total cost of the raw materials, including CGST and SGST, will be Rs. 59,400 (Rs. 50,000 + 9% CGST + 9% SGST).
Now, ABC Company processes the raw materials and manufactures a finished product, which it sells to a customer in Maharashtra at a price of Rs. 1,00,000. The applicable IGST rate is 18%.
Hence, the IGST payable by ABC Company will be calculated as follows:
- IGST payable on sales = 18% of Rs. 1,00,000 = Rs. 18,000
However, ABC Company can claim a credit for the CGST and SGST paid on the purchase of raw materials. The CGST and SGST credit available to ABC Company will be:
- CGST credit = 9% of Rs. 50,000 = Rs. 4,500
- SGST credit = 9% of Rs. 50,000 = Rs. 4,500
Therefore, the net IGST payable by ABC Company will be:
- IGST payable = IGST on sales – CGST credit – SGST credit = Rs. 18,000 – Rs. 4,500 – Rs. 4,500 = Rs. 9,000
So, ABC Company will deposit Rs. 9,000 as IGST liability with the government.
In summary,
when a taxpayer makes a taxable supply, the applicable CGST, SGST, or IGST can be adjusted against the respective credit available to the taxpayer. If the credit is more than the liability, the excess can be carried forward or refunded. If the liability is more than the credit, the taxpayer will have to pay the net amount as tax. In the case of inter-state transactions, IGST credit can be adjusted against IGST liability.
