Transitional ITC (Input Tax Credit) refers to the tax that is carried over after the closing of your financial books for a specific year. The tax needs to be submitted in the July-August period. This tax is a part of the Goods and Services Tax (GST) and failure to pay Transitional ITC leads to a heavy penalty. To claim this tax, a company has to submit Form GSTR-3B to be eligible for a tax break within 90 days from 1st July.
Claiming Transitional ITC
Businesses need to file form Tran-1 within 90 days from 1st July 2017 to claim the transitional ITC. The eligible amount of transitional ITC is credited to the e-ledger of the company through the GST portal. The amount can then be used for paying the tax liabilities through ITC adjustment at the time of filing returns.
The Significance of filing GSTR-3B
The deadline for filing GSTR-3B was 20th August 2017 which was later extended to 25th August 2017. However, businesses cannot claim the transitional ITC directly through GSTR-3B. The businesses have to calculate their tax liability after calculating the amount of transitional credit according to form Tran-1.
Tax payable = (Output tax liability + Tax payable under reverse charge) – (Transitional credit + input tax credit availed in July, 2017)
Business owners can try and use this formula to calculate their tax liability for the month of July.
The derived tax liability after using this formula must be paid before 25th August 2017. However, filing the form GSTR-3B gives a grace period of 8 additional days before 28th August. Businesses need to ensure that they submit the Tran-1 form before 28th August 2017. The form uploading facility on GST portal will be started from 21st August 2017.
There are several IT companies offering Enterprise Resource Planning (ERP) software. This software is meant to simplify the tax calculations and do it all automatically without any effort on the part of the business owner. This ensures that the company does not have to use additional accounting software for this purpose. The ERP software does the job efficiently and the business owner can concentrate on other important aspects of the business. This has made carrying out business transactions and processes easily for a lot of people, especially tyre dealers, who have to deal with all sorts of calculations. Now, their problems have been addressed and resolved to a great extent. They can concentrate on core business practices instead of worrying about tax calculations.