Understanding Computation of Refund of Accumulated Input Tax Credit

If you are a business owner in India, you may be familiar with the concept of GST or Goods and Services Tax. GST is an indirect tax levied on the supply of goods and services. One of the key features of GST is that it allows for the input tax credit, which means that businesses can claim credit for the taxes paid on inputs used in the production of goods and services. However, there may be instances where the input tax credit accumulated in your account is more than the output tax liability. In such cases, you may be eligible for a refund of the accumulated input tax credit. In this article, we will discuss the computation of refund of accumulated input tax credit.

What is Input Tax Credit?

Before we delve into the computation of refund of accumulated input tax credit, let's understand what input tax credit is. Input tax credit is the credit that businesses can claim for the taxes paid on inputs used in the production of goods and services. In other words, it is the tax paid on the purchase of raw materials, capital goods, etc., which can be set off against the output tax liability.

What is Accumulated Input Tax Credit?

Accumulated input tax credit is the input tax credit that remains unutilized in your electronic credit ledger. This may happen when the input tax credit is more than the output tax liability. For example, if the input tax credit is ₹10,000 and the output tax liability is ₹8,000, the accumulated input tax credit will be ₹2,000.

Who is Eligible for Refund of Accumulated Input Tax Credit?

Not all businesses are eligible for refund of accumulated input tax credit. The following are the businesses that are eligible for refund:

1. Exporters of goods or services

2. Suppliers of goods or services to SEZ units or SEZ developers

3. Deemed exporters

It is important to note that the refund of accumulated input tax credit is not available to businesses that have zero-rated supplies or that supply exempt goods or services.

Computation of Refund of Accumulated Input Tax Credit

The computation of refund of accumulated input tax credit involves the following steps:

Step 1: Calculation of Eligible Input Tax Credit

The first step in the computation of refund of accumulated input tax credit is the calculation of eligible input tax credit. This involves the following:

Identifying the eligible input tax credit that can be claimed as per the GST law
Verification of the input tax credit claimed in the GST returns
Reversal of input tax credit if there are any ineligible input tax credit claims

Step 2: Calculation of Net Input Tax Credit

The next step in the computation of refund of accumulated input tax credit is the calculation of net input tax credit. This involves the following:

Calculation of total input tax credit available
Deduction of ineligible input tax credit as per the GST law
Deduction of input tax credit claimed for exempt supplies

Step 3: Calculation of Refund Amount

The final step in the computation of refund of accumulated input tax credit is the calculation of refund amount. This involves the following:

Calculation of the balance of net input tax credit
Deduction of any outstanding tax liabilities
Deduction of any other outstanding dues under any law administered by the Central Government or the State Government

The refund amount will be credited to the bank account of the taxpayer.

Conclusion

The computation of refund of accumulated input tax credit can be complex, and it is important to take the help of a tax professional to ensure that the computation is done accurately. However, understanding the basics of input tax credit, accumulated input tax credit, and refund of accumulated input tax credit can help businesses to manage their GST compliance better.