In the GST system, the flow of money involves three main parties: the seller, the buyer, and the government. Here's a breakdown of how the money flows:

1. Seller to Buyer:

• Seller charges GST on Sale: When the seller sells goods or services to the buyer, they charge GST on the sale price. This is called output GST.

  • Example: If the seller sells goods worth ₹10,000 with a GST rate of 18%, the seller will charge ₹1,800 as GST.
  • The total amount payable by the buyer is ₹10,000 + ₹1,800 = ₹11,800.

• Buyer Pays the Total Amount: The buyer pays the total amount, which includes the sale price plus the GST amount.

  • Buyer’s payment = ₹11,800.

2. Buyer to Seller:

• Buyer Gets Input Tax Credit (ITC): The buyer can claim the GST paid on purchases as an Input Tax Credit (ITC), which can be used to offset the GST payable on their own sales.
  • For example: If the buyer later sells goods worth ₹15,000 with 18% GST (₹2,700), they can use the ₹1,800 GST paid on the initial purchase to reduce the amount of GST they owe to the government.

3. Seller to Government:

• Seller Remits GST Collected: The seller has collected the GST from the buyer (₹1,800), and this amount must be paid to the government.

  • The seller files a GSTR-3B return, reporting the tax collected on sales.

  • The seller must remit the GST to the government.

  • The seller is responsible for paying the CGST and SGST (if within the same state) or IGST (if the transaction is between states) to the government.

  • Example: The seller collected ₹1,800 (18% GST on ₹10,000 sale). They will pay this ₹1,800 to the government after offsetting any Input Tax Credit (ITC) from purchases.

4. Buyer to Government:

• Buyer Pays GST on Their Own Sales: When the buyer (who might also be a seller) sells goods or services, they charge GST on their sales (output GST). However, they can use the ITC to offset the tax they owe to the government.
  • Example: If the buyer later sells goods worth ₹15,000 with 18% GST (₹2,700), they will pay ₹2,700 to the government but can offset it by claiming the ₹1,800 ITC from the earlier purchase.
  • The buyer will only need to pay the difference (₹2,700 - ₹1,800 = ₹900) to the government.

Summary of Money Flow:

1. Seller charges GST on sale to Buyer:

   • Seller collects GST from the buyer (e.g., ₹1,800 on ₹10,000 sale).
   • Buyer pays the total amount (₹11,800 in the example).

2. Buyer claims Input Tax Credit (ITC):

   • Buyer can use the GST paid on the purchase to offset their own GST liability when they make their own sales.

3. Seller pays GST to the Government:

   • The seller remits the collected GST (₹1,800) to the government after adjusting any ITC they are eligible for.

4. Buyer pays GST to the Government on their own sales:

   • When the buyer sells goods or services, they charge GST on the sale price.
   • They pay the government the GST amount, less any ITC from earlier purchases.

In essence, the money flows as follows:

• Seller to Buyer: GST is charged on the sale.
• Buyer to Seller: Buyer pays the total sale price + GST.
• Seller to Government: Seller remits the GST they collected.
• Buyer to Government: Buyer pays GST on their own sales, offset by ITC.

This creates a continuous flow of tax credit from one stage of the supply chain to the next, ensuring that GST is only effectively paid on the value added at each stage.