Computation of GST liability

1. Introduction

GST liability refers to the net tax payable by a business after adjusting Input Tax Credit (ITC) against the Output Tax liability. The computation ensures that businesses only pay tax on the value added at each stage of production or distribution.

2. Formula for GST Liability

The net GST liability is computed as:

Net GST Payable = Output GST - Eligible ITC

Where:

• Output GST = Tax collected on sales (goods/services supplied)
• Eligible ITC = Credit for tax paid on purchases (inputs, capital goods, services)

3. Steps in Computation

Step 1: Calculate Output GST

Businesses need to determine the total GST collected on outward supplies:

Output GST = Sum of (Taxable Value × Applicable GST Rate)

Step 2: Compute Input Tax Credit (ITC)

ITC includes tax paid on:

• Raw materials and goods used in manufacturing.
• Input services such as logistics, marketing, etc.
• Capital goods like machinery and equipment.

ITC is claimed only if conditions specified under GST law are met.

Step 3: Compute Net GST Payable

After applying ITC:

Net GST Liability = Output GST - ITC Claimed

If ITC is higher than Output GST, the excess can be carried forward or refunded in certain cases.

4. Order of ITC Utilization

GST law specifies a set-off mechanism for utilizing ITC:

Type of ITC	Can be used for	Order of utilization
CGST ITC	CGST, IGST	1. CGST, 2. IGST
SGST/UTGST ITC	SGST/UTGST, IGST	1. SGST/UTGST, 2. IGST
IGST ITC	IGST, CGST, SGST/UTGST	1. IGST, 2. CGST, 3. SGST/UTGST

5. Example of GST Computation

Scenario:

A manufacturer sells goods worth Rs 10,00,000 attracting 18% GST (9% CGST + 9% SGST). The tax collected is:

• CGST = Rs 90,000
• SGST = Rs 90,000
• Total Output GST = Rs 1,80,000

On purchases, the manufacturer paid Rs 1,20,000 as ITC (Rs 60,000 CGST + Rs 60,000 SGST).

Computation of Net GST Payable:

Net CGST = 90,000 - 60,000 = 30,000 Net SGST = 90,000 - 60,000 = 30,000

Total tax liability to be paid in cash = Rs 60,000.

6. Special Cases

• Reverse Charge Mechanism (RCM): GST is paid by the recipient instead of the supplier.
• Composition Scheme: Small businesses pay a fixed percentage of turnover as GST without ITC.
• Exports & Zero-Rated Supplies: No GST on sales, ITC is refunded.

7. Filing & Compliance

GST liability is reported in GSTR-3B monthly/quarterly. Any mismatch in ITC or underpayment may result in interest, penalties, or legal action.