How Can E-Commerce Sellers Use Excess GST Credit from 18% Service Tax?

An e-commerce business means there is no dead end to your list of tasks. At any given moment, businesses are juggling between various tasks such as inventory management and order fulfilment. Among the areas that are usually ignored is the GST (Goods and Services Tax) credit, particularly the surplus credit earned under 18 per cent GST on services. 

Have you ever wondered what to do with those surplus credits sitting in your electronic credit ledger in the form of GST ITC credits? Don’t let it get stuck here; it can be a great use to your business. In this blog, we will explore different ways to utilise GST credits from the 18% GST on services. 

What is GST Credit?

You can claim the Input Tax Credit (ITC) on the goods and services you buy for business purposes, against the GST you paid. It is a facility to claim Input Tax Credit (ITC) on those purchases. Under this facility, you can offset the GST paid on purchases from the GST you need to pay on your sales. 

As an example, when you are selling goods or services and the GST charged on the sale is ₹500, and you have already paid the ₹300 GST on services you used to operate your business, then you can offset the ₹300 from the ₹500 you are required to pay. This leaves you with only ₹200 to pay to the government.

But what if, now, suppose the GST on your purchases (input) is greater than the GST on your sales (output)? This is where excess GST credit enters the picture. It can be that you have more input tax credit than you are required to pay, and it can be carried forward as well. 

Why Does Excess GST Credit Accumulate?

For e-commerce businesses, you are most likely to accumulate GST credit when paying GST on services such as shipping, packaging, marketing and digital subscriptions (i.e. tools such as Shopify, Google Ads, etc.). 

For example, if you are paying 18% GST on your advertising bill but the output GST on your supplies doesn’t climb up to that point to be able to take that credit, that excess amount will remain with the government unless properly utilised. It’s like when you have a bunch of gift cards and you don’t know what to do with them.

How Does GST Credit Offsetting Work? 

Here is the breakdown of how GST credit offsetting works: 

IGST credit (from interstate service bills) can first be used for IGST, and then CGST and SGST liabilities, in that order.

CGST and SGST credits can be used for their respective liabilities and IGST, but not for each other.

Example: If you paid IGST in large amounts on digital advertising, first offset all your IGST liability, then use any extra to pay CGST and SGST.

How Can E-Commerce Sellers Utilise Excess GST Credit?

What if we tell you that excess GST credit can be used to your advantage, and the total amount of taxes will be reduced? A breakdown of how that credit can be used is as follows:

1. Offsetting Future GST Liabilities

One of the simplest and preferred ways to utilise GST credits is to offset your future GST liabilities. When your GST credit is more than your GST liabilities, you can use it to offset them in the coming months/quarters. 

When you have built a larger credit in GST than necessary to pay, you can use the credit in the next few months/quarters when your output GST is bigger than the amount you paid as input taxes. This will minimise the cash out-of-pocket money. This reduces the amount of cash you need to pay out of pocket.

Example:

Suppose you have ₹20,000 of excess GST credit for activities such as shipping and marketing. The following quarter, the sales you make are higher, and now you will have to pay ₹25,000 in output GST. This liability can be offset with the surplus credit, making you only pay ₹5,000 to the government. 

2. Transferring Credit Between GSTINs

In case you own multiple businesses that have various GSTINs, you could transfer the unused credit in one GSTIN to the other. It is the best option for ecommerce businesses that have different branches, divisions, or subsidiary companies. You are allowed to transfer a GST credit between GSTIN credits of the same entity, hence ensuring that you make the best use of the accumulated credit. However, it is subject to specific conditions.

3. Claiming Refund of Unutilised Credit

In some instances where there is an inverted tax structure between the input and output, you are entitled to receive a refund of the unused GST credit. 

In case you are involved in export business, you may get the refund of the surplus GST credit accrued on the services that have been used in making such exports. This refund could be a significant amount, as all your credits will get converted into the refund. 

Conclusion

The fact is that most ecommerce businesses ignore encashing their GST credits, and let them stay credited in the electronic credit ledger. We encourage you to apply for GST credit refunds whenever possible and make use of those credits in growing your business. 

As an ecommerce business, if you are struggling to file your GST returns, we recommend that you subscribe to Munim GST Return Filing software today and streamline your compliance. 

Frequently Asked Questions

What is the electronic credit ledger in GST?​

The GST portal’s electronic credit ledger is similar to a digital wallet. It depicts all the Input Tax Credit (ITC) earned on purchases and services. You are able to pay off your output GST liability using the balance in this ledger.

What is the input tax credit in GST?​

Input Tax Credit (ITC) means that you will be subject to paying less GST on the sales at the expense of the GST that you have already paid on purchases. 

What is block credit in GST?​

Blocked credit is the GST credit that you cannot claim, even though you paid GST on the same. 

How to check input tax credit in the GST Portal?​

To check ITC on the GST portal:

Step 1: Log in to the GST portal

Step 2: Go to Services > Ledgers > Electronic Credit Ledger to view your ITC balance.

Step 3: You can also check matched ITC from suppliers in Returns > GSTR-2B.

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