Input Tax, Output Tax, and the Trading Chain
Chapter 4 | Financial Planning
Products move through a chain of traders before finally reaching you (the consumer).
B2B (Business to Business):
When a factory sells to a shopkeeper. Both have GST numbers.
B2C (Business to Consumer):
When the shopkeeper sells the final product to YOU. You don't have a GST number.
The Golden Rule: The final consumer pays the ENTIRE tax burden. The traders in the middle do not pay tax out of their own pockets!
Imagine you own a Mobile Phone Shop. Let's look at your taxes from two directions:
The GST you pay when you BUY stock from the wholesaler.
(You buy 10 phones. You pay GST to the wholesaler).
The GST you collect when you SELL phones to customers.
(A customer buys a phone. You collect GST from them).
ITC is like a "cashback" system for shopkeepers. It prevents "Cascading Effect" (Tax on Tax).
Small shops (earning under ₹1.5 Crore) can choose a simplified scheme. They pay a flat 1% tax from their own pocket to avoid heavy paperwork.
How does the government stop tax evasion? Using these three rules:
An electronic "permit" needed to move goods in a truck if the value is over ₹50,000.
Tells the system exactly where the goods are consumed to decide if it's CGST+SGST or IGST.
Locks in the exact date so the business knows which month to pay the tax in.
A retailer pays ₹5,000 as GST while purchasing stock (Input Tax), and collects ₹7,500 as GST while selling it (Output Tax). What is his Net GST Payable in cash?
Answer: ₹2,500 (Output ₹7,500 - Input ₹5,000)
Can a shopkeeper under the Composition Scheme issue a "Tax Invoice" and charge you GST?
Answer: NO! They must issue a "Bill of Supply".