UTILISATION OF INPUT TAX CREDIT – Section 49A & 49B read with Rule 88A of CGST ACT.
CGST Amendment Act 2018 insert two new sections Section 49A & 49B containing new order of set off of GST liability (from 1st Feb 2019). Prior to this Section 49(5) of CGST Act contains manner of utilization of ITC. Let’s read both old and new provision with help of example.
SECTION 49(5)- The amount of input tax credit available in the electronic credit ledger of the registered person on account of:
i) Integrated tax shall be first utilized towards the payment of integrated tax and remaining amount may be utilized for payment of central tax and State tax or Union territory tax, if any.
ii) The central tax shall be first utilized towards the payment of central tax and remaining amount may be utilized to pay taxes towards the integrated taxes.
iii) The State tax shall be first utilized towards the payment of State tax and remaining amount may be utilized to pay taxes towards the integrated taxes.
iv) The Union Territory taxes shall be first utilized towards the payment of union territory taxes and remaining amount may be used to pay toward integrated taxes.
v) The State tax or union territory tax shall not be utilized towards the payment of central tax or vice-versa.
vi) Any balance in the electronic cash ledger or electronic credit ledger after the payment of all taxes, penalty, fee, or any other payable amount may be refunded to the taxpayer as per provisions under section 54 of GST Act.
Order of Utilisation as per Section 49(5)
| Output Liability | First Set Off | Next Set Off | Not Allowed to Set Off |
| IGST | IGST | CGST& SGST/UTGST | |
| CGST | CGST | IGST | SGST/UTGST |
| SGST | SGST | IGST | CGST |
| UTGST | UTGST | IGST | CGST |
Now with introduction on 49A & 49 B in CGST Amendment Act 2018, the Order for availing the set off of ITC has been changed w.e.f 1st Feb 2019.
“Utilisation of input tax credit subject to certain conditions”
“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.”
“Order of utilisation of input tax credit”
“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.”.
Order of Utilisation as per Section 49A & 49 B-
| Output Liability | First Set Off | Next Set Off | Not Allowed to Set Off |
| IGST | IGST | CGST& SGST/UTGST | |
| CGST | IGST | CGST | SGST/UTGST |
| SGST | IGST | SGST | CGST |
| UTGST | IGST T | UTGST | CGST |
Impact of this can be understood with the help of 2 example-
EXAMPLE 1 – When there is no liability of IGST but there is ITC of IGST
- Rules of Set Off till The Month of January 2019-
| ITC AVAILABLE | LIABILITY | FIRST SET OFF | SECOND SET
OFF |
LIAB. TO BE PAID IN
CASH |
BALANCE
ITC |
|
| IGST | 16000 | 0 | 0 | |||
| CGST | 12000 | 20000 | (12000)-CGST | (8000)-IGST | 0 | 0 |
| SGST | 12000 | 20000 | (12000)-SGST | (8000)-IGST | 0 | 0 |
- Rules of Set Off from 1st February 2019
| ITC AVAILABLE | LIABILITY | FIRST SET OFF | SECOND SET
OFF |
LIAB. TO BE PAID IN
CASH |
BALANCE
ITC |
|
| IGST | 16000 | 0
|
0 | 0 | 0 | 0 |
| CGST | 12000 | 20000 | (16000)-IGST | (4000)-CGST | 0 | 8000-CGST |
| SGST | 12000 | 20000 | NO IGST ITC as exhausted | (12000)-SGST | 8000-SGST | 0 |
EXAMPLE 2 – When there is some liability of IGST as well as ITC of IGST
- Rules of Set Off till The Month of January 2019-
| ITC AVAILABLE | LIABILITY | FIRST SET OFF | SECOND SET
OFF |
LIAB. TO BE PAID IN
CASH |
BALANCE
ITC |
|
| IGST | 16000 | 8000 | (8000)-IGST | 0 | 2000-IGST | |
| CGST | 12000 | 15000 | (12000)-CGST | (3000)-IGST | 0 | 0 |
| SGST | 12000 | 15000 | (12000)-SGST | (3000)-IGST | 0 | 0 |
- Rules of Set Off from 1st February 2019
| ITC AVAILABLE | LIABILITY | FIRST SET OFF | SECOND SET
OFF |
LIAB. TO BE PAID IN
CASH |
BALANCE
ITC |
|
| IGST | 16000 | 8000
|
(8000)-IGST | 0 | 0 | 0 |
| CGST | 12000 | 15000 | (8000)-IGST | (7000)-CGST | 0 | 5000-CGST |
| SGST | 12000 | 15000 | NO IGST ITC as exhausted | (12000)-SGST | 3000-SGST | 0 |
THIS NEW ORDER OF SET OFF IS RESULTING IN BLOCKAGE OF ITC OF SGST & CGST, RESULTING IN PAYMENT OF TAXES BY TAXPAYERS.
TO CURVE THIS – The new order of ITC utilization rule 88A is brought vide Notification no 16/2019 dated 29-03-2019 made effective from the 1st April 2019.
Let us analyze the changes that are being brought by the new order of utilization vide rule 88A by the power conferred to the government vide section 49B.
“Rule 88A.” Order of utilization of input tax credit. –
“Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order”
“Proviso to Rule 88A”
‘’Provided that 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 utilized fully.”
As per the latest amendment, the order of utilization after the setoff of IGST liability was compulsory CGST and then SGST/UGST. Now the order has been relaxed wherein either of CGST or SGST/UGST liability can be set off.
Order of Utilisation as per Rule 88A –
| Output
Liability |
First
Set Off |
Next
Set Off |
Not Allowed
to Set Off |
Impact of Rule 88A and related Proviso |
| IGST | IGST | CGST
or SGST |
IGST liability will be settled off first compulsory and then free to use IGST Input in either of the payment CGST or SGST/UGST liability in any order. | |
| CGST | IGST | CGST | SGST/UTGST | Now taxpayer has to exhaust ITC of IGST first i.e. first from IGST and then in any manner.
Earlier order of utilizing of IGST, CGST and SGST/UTGST in order specified in 49A & 49B has been removed with this rule. |
| SGST | IGST | SGST | CGST | |
| UTGST | IGST T | UTGST | CGST |
NOW, let’s discussed another example in compliance with Rule 88A.
| ITC AVAILABLE | LIABILITY | FIRST SET OFF | SECOND SET OFF | LIAB. TO BE PAID IN CASH | BALANCE ITC | |
| IGST | 16000 | 8000
|
(8000)-IGST | 0 | 0 | 0 |
| CGST | 12000 | 12000 | IGST is set off from SGST | (12000)-CGST | 0 | 0 |
| SGST | 12000 | 16000 | (8000)-IGST | (8000)-SGST | 0 | 4000-SGST |
Some important points to be kept in mind-
- ITC of IGST should me utilised in full before utilizing any other credit.
- Taxpayers should note that Utilization of IGST ITC shall be allowed only when IGST liability has been fully paid first. After using it for IGST liability, it can be used for any other tax liability.
- With introduction of this rule, taxpayer can adjust IGST ITC remaining after adjusting IGST liability with CGST/SGST/UTGST as per their discretion.
Disclaimer -The provisions explained above is as per understanding taken by the author. Author takes no Users of this information are expected to refer to the relevant existing provisions of applicable. For any query- Email- [email protected].
Author Bio
After availing IGST first, now my IGST ITC is 18 lakhs and IGST Refund for export without tax (LUT) is 36 lakhs.
Can i take the balance 18 lakhs from CGST and SGST. (both balance 33 lakhs each)?
Can we claim refund of such accumulated credit in SGST if there is no stock and there is no businesses
SIR What happen if we wrongly setoff ITC u/s 49(5) instead of sec 49A Is there any penalty or fine ?
Thanks in avance.
SIR Already cgst or sgst balanece 10000:10000 available hai phir bhi gst portal sgst 4000 payment karne ko bol raha hai mai kya karu
SIR ONE QUESTION IN WHICH I HAVE CONFUSED
IF OPENING ITC SGST 42506
IGST OUTPUT 426605 IGST INPUT 65320
CGST OUTPUT 12200 CGST INPUT 355620
SGST OUTPUT 12200 SGST INPUT 355620
THEN WHAT WILL BE THE TAX ACCORDING TO
88A
can be use ITC of IGST in cgst sgst liabilities set off Proportionally (eg. 50 % each)
Why this ITC rule has been changed? What happened in previous ITC rule so that council has brought new amendments?
Sir, In the above example if IGST liability is Rs 16,000 & CGST liability is Rs 6000 suppose & ITC is Rs 8000 under each i.e. IGST , CGST & SGST so as per rule 88A should we use CGST credit of Rs 8000 to pay off IGST liability first & then use balance if any for CGST ?