Returns Process and Matching of Input Tax Credit in GST
Returns Process and Matching of Input Tax Credit in GST provides a framework for working out the tax that becomes payable in the prescribed period applying the legal principles laid down in the tax law to the transactions during the period. A taxable person has a legal obligation
(i) to declare his tax liability for a given period in the return;
(ii) furnish details about the taxes paid in accordance with that return; and
(iii) file correct and complete return within stipulated time frame.
Returns Process and Matching of Input Tax Credit in GST are totally electronic without any requirement of physical submission. The effort has been to make it as transaction based as possible so that once the taxpayer gives the details of transactions, most part of the return is auto-generated from details of underlying individual transactions. There shall be one common return for IGST, CGST and SGST that shall be submitted by the GST Common Portal and tax departments will pull the return data relevant to them from the portal for further processing and analysis.
Matching of Input Tax Credit and auto-reversal is one of the core features of GST. The primary reason for having this feature arises from the fact that one of the most important design specification of GST is that it should allow full credit of taxes paid across State boundaries, making it a truly national tax while keeping the federal structure intact.
Operationally, it allows a taxpayer registered in one State can take credit of IGST paid to a taxpayer registered in another State against SGST payable by him in his State and vice versa. This requires that whenever a taxpayer takes credit of IGST paid against SGST payable, the Centre transfers an equivalent amount to the relevant State and whenever a taxpayer takes credit of SGST paid against IGST payable, the relevant State transfers an equivalent amount to the relevant Centre.
For smooth operation of such a fund transfer mechanism, which is essential for smooth flow of credit, it is important that a system is in place which ensures that whenever a taxpayer takes credit of any tax paid on his inputs, the tax amount has either already been collected or gets collected in due course. It is also essential that such a system runs without any manual intervention. Matching of input tax credit and auto reversal provides exactly that mechanism