I want to understand how GST debit and credit balances are handled in the software. Why is one carried forward but not the other?
In the context of Goods and Services Tax in India, the concepts of GST debit and credit balances typically refer to the input tax credit and output tax liability.
1. Input Tax Credit or ITC means the Goods and Services Tax paid by a taxable person on any purchase of goods or services that are used or will be used for business. This debit balance is carried forward to subsequent tax periods, allowing the business to use it to offset future GST liabilities. It is an amount available for adjustment against future tax payments.
2. Output Tax Liability refers to the money a business owes to the government for selling taxable goods and services. This amount is usually collected from customers at the time of sale. Unlike ITC, a credit balance in the output tax liability is not carried forward. It represents an amount that must be paid to the government in the current or upcoming tax periods.
In Summary, the credit balance is not getting carried forward to the next month because according to the government rules, credit balances cannot be carried forward. They need to be consumed or cross-adjusted with the debit balance of GST and if credit balance remains then have to pay tax to the government. On the other hand, if a debit balance remains, it is carried forward to the next month.