Input Tax credit utilization with example
GST set-off Rules
New GST set off rules
The new CGST Circular No. 98/17/2019 is introduced to reduce the balance under IGST Credits and to optimise the distribution between the Center and the state by the Central Board of Indirect Taxes and Customs (CBIC).
In simple terms, Rule 88A states that ITC credits of IGST should be first used to pay off liabilities under IGST and the balance credit in IGST can be used for paying CGST and SGST/ UTGST liabilities in any order.
If the order of credit utilization is not optimised, then the business will have a high working capital requirement.
So, it is essential to understand what is the change and its impact on the business sector as a whole.
CGST (Amendment) Act in Section 49(5)
The two new sections that got added under Section 49 of the CGST Act are:
49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax, or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment.
49B. Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.
Rule 88A in CGST
Rule 88A as mentioned in the government circular:
The newly inserted rule 88A in the CGST Rules allows utilisation of input tax credit of integrated tax towards the payment of Central tax and State tax, or as the case may be, Union Territory tax, in any order subject to the condition that the entire input tax credit on account of integrated tax is completely exhausted first before the input tax credit on account of Central tax or State/Union Territory tax can be utilised.
Effect of new GST set off rules
The order maintained before the new amended CGST Law is given below:
IGST LIABILITY | CGST LIABILITY | SGST LIABILITY |
IGST CREDIT CGST OR SGST CREDIT | CGST CREDIT IGST CREDIT | SGST CREDIT IGST CREDIT |
The new order after the new amended CGST Law should be:
IGST LIABILITY | CGST LIABILITY | SGST LIABILITY |
IGST CREDIT CGST CREDIT SGST CREDIT | IGST CREDIT CGST CREDIT | IGST CREDIT SGST CREDIT |
Hence, a taxpayer must begin with the set-off process with ITC of IGST, and he should completely utilise it before utilising the ITC of CGST or ITC of SGST.
Example of new GST set off rules
For example, if after settling of IGST Liability, IGST ITC credit you have is Rs. 12,000 and CGST liability is Rs. 12,000 and SGST Liability is Rs. 2,000, then IGST credit can be utilised against the SGST liability of Rs. 2,000 and CGST Liability of Rs. 10,000. Therefore, the balance CGST liability will be Rs. 2,000. So, the total tax amount you have to pay is Rs. 2,000.
The new GST set off rules give a clear idea of ITC credit utilisation for each tax head. So, taxpayers can follow the existing facility in the GST portal until Rule 88A of the CGST is implemented.
We have come to an end of this post on GST set off rules.
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