Based on extensive feedback from various stakeholders, including assesses, tax professionals, and GST officers, it has come to my attention that even after six years since the implementation of GST, the utilization of Input Tax Credit and the optimal order of its utilization remain areas of significant ambiguity and complexity.
In response to these challenges, my forthcoming article endeavors to shed light on this intricate subject.
The proposed methodology aims to achieve dual objectives:
a) Minimize the Challan Amount required to discharge the liability.
b) Maintain an equal closing balance in both the CGST and SGST Electronic Credit Ledgers post-utilization, to the maximum extent possible.
Legal Framework:
Relevant Section of GST Law: Section 49, 49A and 49B
Relevant Rules of GST Law: Rule 88A
On the analysis of above legal framework, following inferences shall be drawn:
| LIMB | LEGAL PROVISIONS |
| IGST OUTPUT | Settled firstly from IGST Input, then from CGST Input; only after that can SGST Input be used. |
| CGST OUTPUT | Settled firstly from IGST Input, then from CGST Input. |
| SGST OUTPUT | Settled firstly from IGST Input, then only from SGST Input. |
| IGST INPUT | Utilized firstly for IGST Output, then for CGST Output or SGST Output (no fixed order). |
| CGST INPUT | Utilized firstly for CGST Output, then for IGST Output. |
| SGST INPUT | Utilized firstly for SGST Output, then for IGST Output. |
*Wherever “firstly” or “then” is mentioned, it denotes the mandatory order of utilization
However, an apparent contradiction arises in the law, specifically in Section 49(5)(a) and Rule 88A.
Section 49(5)(a) dictates that IGST Input, after utilization against IGST output, shall be used against CGST Output Liability first and then against SGST Output Liability.
In contrast, Rule 88A states that IGST Input, after utilization against IGST output, can be used against CGST Output Liability or SGST Output Liability in any order.
Author’s Note: Rule 88A has been enacted in line with Section 49B of the CGST Act, 2017. This section overrides the entire chapter (Chapter-X – Payment of Taxes) except for Clause (e) and (f) of Section 49(5). Consequently, the authority granted to taxpayers through Rule 88A, allowing them to decide the order of utilizing IGST Input against CGST and SGST Output Liability, appears valid and unambiguous.
To simplify the application of these rules, we have developed a user-friendly tool known as the “AKAC OPTIMUM ITC UTILIZATION CALCULATOR.” Link of the same is given at the end of the Post.
Disclaimer: The information contained in this document is intended solely for dissemination of information and doesn’t aim at soliciting work in any manner. Though meticulous care has been taken but the author assumes no liability in respect of any loss/damage incurred while acting on the basis of information provided. The above framework has been developed by the author after researching since long time and a proprietary intellectual property of the author.
The author can be reached at [email protected] and can be called at +91-7011503210.
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