GST System
Systems of GST
There are three recognized systems for GST worldwide
(a) Invoice System
(b) Payment System
(c) Hybrid System
(a) Invoice System: In this system the GST (Input) can be claimed on the basis of acknowledgement of invoice, put aside the matter whether payment is cleared or not. The GST (Output) is accounted for when invoice is raised. Here the time of receipt of payment keeps no value.
It may be considered as mercantile system of accounting. In our country prevailing system of sales tax on goods is an invoice system of VAT and it bears no value for taxpayer if he follows the cash basis of accounting or mercantile basis of accounting.
This system has both the advantages & disadvantages. The benefit can be derived from this system is that the input credit is claimed without clearing payment. The disadvantage of the invoice system is that the payment for GST has to be made without receiving the payment.
(b) Payment System: In this system the GST (Input) can be claimed at the time of making the payment for purchases and the GST (Output) is accounted for when the payment is cleared. In payment system, it has no value whether the assessee is preserving the accounts on cash basis or not.
This system has both the advantages & disadvantages. The advantage is that no sooner the payment for the goods and/or services is received the Tax (output) should not be deposited. The disadvantage is that the GST (input) cannot be acclaimed without releasing the payment. The Taxes on services in India are based on this payment system as the service tax is to be paid on receipt basis and further Cenvat credit is only permissible when payment of the service is made.
(c) Hybrid System: In this system GST (Input) can be claimed at the time of receiving invoice and GST (Output) is accountable on the ground of payment, if allowed by the law. In some countries the dealers have to put their option for this system or for a reversal of this system before adopting the same.
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