Question

Mr. Rohit is a retailer. He paid GST of $Rs.6500$ at the time of purchase. He collected GST of $Rs.8000$ at the time of sale. (i) Find his input tax and output tax. (ii) What is his input tax credit? (iii) Find his payable CGST and payable SGST.

Answer 1

Hint: At first, we try to understand the problem properly. We should understand what the terms input tax, output tax and others mean. After that, we try to draw an analogy with this problem, and find out the required answers. We try to visualize what tax is paid by whom to whom. This will solve the problem by $50\%$ .

Complete step by step answer:
Input tax means the tax which is charged on supply of goods or services or both made to a registered person. Here, by input tax we mean the tax that Mr. Rohit paid while purchasing which is $Rs.6500$ . Now, output tax is the VAT that is calculated and charged on the sale of goods and services from our business. Here, by output tax, we mean the tax that Mr. Rohit collected while selling which is $Rs.8000$ .
Input tax credit means at the time of paying tax on output, we can reduce the tax we have already paid on inputs. Let us say tax payable on output is \[Rs.450\] and tax paid on input is \[Rs.300\] . We can claim input credit of \[Rs.300\] and you only need to deposit \[Rs.150\] in taxes. Here, input credit will be the tax paid on input which is $Rs.6500$ .
The payable GST will be the difference of output tax and input tax credit which will be $=Rs.\left( 8000-6500 \right)=Rs.1500$ . The payable CGST and SGST will be the half of that, which is $Rs.\dfrac{1500}{2}=Rs.750$ each.
Thus, we can conclude that
(i) Input tax and output tax are $Rs.6500$ and $Rs.8000$ respectively
(ii) Input tax credit is $Rs.6500$
(iii) Payable CGST and payable SGST are $Rs.750$ each

Note: For this problem, we must be thorough with our concepts of economics and costing. Generally, we tend to ignore them, but these topics are very crucial from the business point of view. Sometimes, we may get confused about which is the input tax credit. Remembering the definition of it will help us throughout.