prpri How is Input Tax Credit (ITC) utilized?? How is Input Tax Credit (ITC) utilized??

Input Tax Credit (hereinafter referred as ITC) is credit available to a person registered under GST on payment of Input Tax. This amount is available in his Electronic Credit Ledger which he can adjust against his output tax liability.

Please note that in this article we are not concerned about Electronic Cash Ledger

In this Article, we will understand the manner to utilize ITC available under various heads of GST.

Section 49(5): Adjustment of ITC

Input Tax Credit

IGST/CGST/SGST/UTGST available in electronic credit ledger can be adjusted in following sequence: –

Order of Preference IGST CGST SGST UTGST
1 IGST CGST SGST of only that STATE UTGST of only that STATE
2 CGST IGST IGST IGST
3 SGST/UTGST  

The ITC available in Electronic credit ledger MUST be utilized in above mentioned order. For example, IGST will first be utilized against IGST payable, then against CGST payable and then if any balance remains then against SGST or UTGST as the case may be.

Few Important points: –

  • SGST / UTGST credit can adjusted against only that state of UT’s SGST / UTGST.
  • ITC i.e. Electronic Credit Ledger balance CANNOT be utilized for payment of Interest or penalty. For that we can use Electronic Cash Ledger Balance. If there is no balance in cash ledger, we have to first add balance and then we can pay Interest or penalty.
  • As per section 49(5)(e), CGST cannot be utilized for payment of SGST/UTGST.
  • As per section 49(5)(e), SGST/UTGST cannot be utilized for payment of CGST.
  • As per section 49A, CGST/SGST/UTGST can be utilized for setting-off IGST/CGST/SGST/UTGST only after IGST credit is fully utilized.

 I hope this article was helpful. Please write your feedback. 

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Author Bio

Qualification: CA in Practice
Company: CA HEMA PANDEY
Location: MUMBAI, Maharashtra, IN
Member Since: 17 Oct 2020 | Total Posts: 2

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