The Goods and Services Tax (GST) in India works on a credit system. Businesses charge tax on sales and claim credit for the tax they pay on purchases. Two key terms in this system are Output GST and Input GST. A clear understanding of these concepts helps businesses manage tax compliance and cash flow effectively.
🔹 What is Output GST?
Output GST means the GST a registered dealer charges on sales (outward supplies) of goods or services. The seller collects this tax from the buyer and pays it to the government.
👉 Example:
A trader sells goods worth ₹1,00,000 at 18% GST. He collects ₹18,000 as Output GST from the customer.
🔹 What is Input GST?
Input GST, also called Input Tax Credit (ITC), refers to the GST paid on purchases (inward supplies). Businesses use this tax credit to reduce their output tax liability.
👉 Example:
If the trader purchases raw materials worth ₹50,000 and pays 18% GST (₹9,000), this amount becomes Input GST (ITC).
🔹 Adjustment of Output GST and Input GST
Businesses calculate net GST liability by adjusting Input GST against Output GST.
Formula:
👉 Net GST Payable = Output GST – Input GST
✅ Example:
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Output GST = ₹18,000
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Input GST = ₹9,000
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Net GST Payable = ₹9,000
Thus, the trader pays tax only on value addition, not on the entire turnover.
🔹 Difference Between Output GST and Input GST
| Basis | Output GST | Input GST |
|---|---|---|
| Meaning | Tax charged on sales (outward supplies). | Tax paid on purchases (inward supplies). |
| Who pays? | The buyer, but collected by the seller. | The seller, when buying from suppliers. |
| When applicable? | At the time of selling goods or services. | At the time of purchasing goods or services. |
| Effect on business | Creates tax liability for the seller. | Creates tax credit to reduce liability. |
| Example | GST collected on goods sold worth ₹1,00,000 = ₹18,000 | GST paid on raw materials worth ₹50,000 = ₹9,000 |
GST Return – File here
🔹 Why are Output and Input GST Important?
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They promote transparency in the tax system.
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Businesses reduce their overall tax liability by claiming credit.
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The mechanism prevents double taxation.
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Proper records of purchases and sales ensure smooth compliance.
✅ Conclusion
In GST, Output GST applies to sales, while Input GST applies to purchases. Businesses reduce their tax burden by setting off Input GST against Output GST. Therefore, the system ensures fair taxation and encourages compliance.