Prudent person always keep an eye on his/her funds available in Bank account, Cash/Gold/other valuable assets kept in the Locker at home, market ups-downs in shares invested & NAV of mutual fund units purchased. But have you ever checked your balance of Input Tax Credit (ITC) of GST in the electronic credit ledger available on the GST Portal. You might be thinking now:
- “But why should I check the same?”
- “Whether the same can be changed by anyone else?”
- “Whether same can be transferred by any hacker to his account?”
- “Whether the same also moves with GDP fluctuations like in stock markets or linked with government’s GST revenue collection?”
The answer is simply “No, not at all”. Then why should we check the GST ITC balance in e-Credit Ledger available on GST Portal. Let’s discuss the same with the help of examples cited in this article.
Once you file your GSTR 3B for the month, then you might have noticed that balance available in electronic Cash Ledger & electronic Credit Ledger changes with the return’s data filed. Implementation of manner of utilization of ITC while discharging GST Liability under New Set off rules w.e.f. 01/02/2019 by CGST Amendment Act, 2018 & with the introduction of new Rule 88A in CGST Rules, 2017 vide notification no.16/2019-CT dated 29/03/2019 read with clarification on 23/04/2019 vide circular no.98/17/2019-GST regarding the same, have changed the way the GST registered persons were filing their GSTR 3B earlier. New set off rules have been summarized as below:
| Input tax Credit on account of:- | Output liability on account of Integrated tax | Output liability on account of Central tax | Output liability on account of State tax / Union Territory tax |
| Integrated tax | (I) | (II) – In any order and in any proportion | |
| (III) Input tax Credit on account of Integrated tax to be completely exhausted mandatorily | |||
| Central tax | (V) | (IV) | Not permitted |
| State tax / Union Territory tax | (VII) | Not permitted | (VI) |
When you check the balance ITC remaining after paying the GST liability for the current tax period, then balance of ITC in CGST Head and SGST Head might not be equal. You might have seen that you have huge balance of SGST, but very little balance of CGST or vice a versa. It depends upon the many factors as below:-
- Exports Sales (IGST Liability) vis-à-vis Intra State Purchase (CGST & SGST ITC)
- Inter State Sales (IGST Liability) vis-à-vis Intra State Purchase (CGST & SGST ITC)
- Intra Sate Sales (CGST & SGST Liability) vis-à-vis Inter State Purchase (IGST ITC)
- Accumulated Credit due to Inverted Rate of duty structure
- Tran-1 & Tran-2 only CGST Credit of Excise/Service Tax
- Tran-1 & Tran-2 only SGST Credit of VAT
Here comes the role of Manner of Utilization of ITC & might depend upon choice/alternative you choose while filing GSTR 3B for the month. Let’s discuss the same with the help of following example-
| Higher Intra State Sales with More Inter State Purchase | ||||
| Output | Amount | Input | Amount | |
| Output IGST | 20,000 | Input IGST | 1,10,000 | |
| Output CGST | 60,000 | Input CGST | 25,000 | |
| Output SGST | 60,000 | Input SGST | 25,000 | |
| Total | 1,40,000 | Total | 1,60,000 | |
–
| Alternative-1 : Set off CGST Liability 1st with IGST ITC (after adjusting IGST liability) | ||||||||||
| Set Off | Input IGST | Input CGST | Input SGST | Total | Carry Forw-ard | Amo-unt | Cash Paym-ent | Amo-unt | ||
| Output IGST | 20,000 | – | – | 20,000 | C/ f. IGST | – | Cash IGST | – | ||
| Output CGST | 60,000 | – | – | 60,000 | C/ f. CGST | 25,000 | Cash CGST | – | ||
| Output SGST | 30,000 | – | 25,000 | 55,000 | C/ f. SGST | – | Cash SGST | 5,000 | ||
| Total | 1,10,000 | – | 25,000 | 1,35,000 | Total | 25,000 | Total | 5,000 | ||
| Alternative-2 : Set off SGST Liability 1st with IGST ITC (after adjusting IGST liability) | ||||||||||
| Set Off | Input IGST | Input CGST | Input SGST | Total | Carry Forw-ard | Amou-nt | Cash Paym-ent | Amo-unt | ||
| Output IGST | 20,000 | – | – | 20,000 | C/f. IGST | – | Cash IGST | – | ||
| Output CGST | 30,000 | 25,000 | – | 55,000 | C/f. CGST | – | Cash CGST | 5,000 | ||
| Output SGST | 60,000 | – | – | 60,000 | C/f. SGST | 25,000 | Cash SGST | – | ||
| Total | 1,10,000 | 25,000 | – | 1,35,000 | Total | 25,000 | Total | 5,000 | ||
| Alternative-3 : Best Set Off: Equally Adjust CGST – SGST Liability with IGST ITC (after adjusting IGST liability) | ||||||||||
| Set Off | Input IGST | Input CGST | Input SGST | Total | Carry Forw-ard | Amo-unt | Cash Paym-ent | Amo-unt | ||
| Output IGST | 20,000 | – | – | 20,000 | C/f. IGST | – | Cash IGST | – | ||
| Output CGST | 45,000 | 15,000 | – | 60,000 | C/f. CGST | 10,000 | Cash CGST | – | ||
| Output SGST | 45,000 | – | 15,000 | 60,000 | C/f. SGST | 10,000 | Cash SGST | – | ||
| Total | 1,10,000 | 15,000 | 15,000 | 1,40,000 | Total | 20,000 | Total | – | ||
As clear from above examples, alternative 1 & 2 bring ITC carry forward of Rs.25,000 for CGST & SGST respectively along with Cash Payment of Rs.5,000 for other head. However alternative 3 don’t require additional Cash payment & same Rs.10,000 of ITC c/f. for CGST & SGST each.
It is important to note that you have to manually enter/adjust figures for set off of GST Liability with ITC on GST Portal while filing GSTR 3B. Incorrect choice might have consequences of blockage of Funds in ITC, which might not be available to set off in routine manner. Just consider the similar above examples by multiplying each figure by 100. You will see that both Alternative 1 & 2 would require additional cash payment of Rs.5,00,000 and ITC carry forward for Rs.25,00,000 in only CGST (Alternative 1) or only SGST (Alternative 2) without ITC in other head. Thus, in next month you won’t be able to fully utilize the same without Cash payment of other counter head. You may see cumulative effect for wrong selection over a period of say 6 months would lead to huge blockage of funds, unless you professionally handle this.
Steps for Set off GST Input Tax Credit & Tax Liability w.e.f. April -2019 onwards have been summarized below:-
| Step | Particulars |
| 1. | First utilize IGST credit for payment of output IGST liability |
| 2. | If output IGST liability is not fully paid under Step 1, then follow Step 5 and 6 below |
| 3. | If output IGST liability is fully paid under Step 1, and balance IGST credit is still left then follow Step 4 below |
| 4. | At the option of the taxpayer
First pay CGST liability out of such balance of IGST Credit and if balance IGST credit still remains pay SGST liability out of such remaining balance Or First pay SGST liability out of such balance of IGST Credit and if balance IGST credit still remains pay CGST liability out of such remaining balance. Or Pay CSGT Liability or SGST Liability in any other Proportion with such IGST Credit (e.g. equally 50%-50%) In either case, tax payer should ensure that all available balance in IGST Credit remaining after Step 1, must be utilized to the extent of output Tax liabilities under CGST and SGST, so that after Step 4 , balance can remain in IGST credit, only if all CGST and SGST liabilities are paid off through IGST credit. In other words after Step 4, tax payer cannot simultaneously keep balance in IGST credit and unpaid liability under CGST or SGST. If any balance IGST Credit remains even after full payment of CGST and SGST liabilities as per Step 4, then, balance of IGST credit still left shall be automatically carried forward in the Electronic ledger to the next period as opening balance of IGST credit. |
| 5. | If CGST liability is not fully paid out of IGST credit after Step 4, then utilize CGST credit for payment of CGST liability, to the extent of CGST credit balance and pay unpaid CGST Liability, if any, in cash.
If any balance CGST Credit remains after full payment of CGST liability, utilize such balance for payment of balance IGST liability remaining after Step 1. If IGST liability is fully paid and Balance CGST credit remains thereafter, same shall be carried forward in the Electronic ledger to the next period as opening balance of CGST credit. If Balance IGST Liability is still not fully paid under Step 5, follow Steps 6 and 7. |
| 6. | If SGST liability is not fully paid out of IGST credit after Step 4, then utilize SGST credit for payment of SGST liability, to the extent of SGST credit balance and pay unpaid SGST Liability, if any, in cash.
If any balance SGST Credit remains after full payment of SGST liability, utilize such balance for payment of balance IGST liability remaining after Step 1 and 5. If IGST liability is fully paid and Balance SGST credit remains thereafter the same shall be carried forward in the Electronic ledger to the next period as opening balance of SGST credit. If Balance IGST Liability is still not fully paid under Step 6, follow Step 7 |
| 7. | Pay unpaid IGST liability remaining after Step 5 and/or 6 in cash |
Concluding Remarks
Regular reconciliation of books, GSTR Returns, Reports available on GST Portal & proper filing of GST Returns with due care & professional behavior would ensure effective Tax Compliance as well as peace of mind. It’s not just filing of GST Return, but it’s discharge of Tax Liability with due care and regular reconciliation. You need to keep yourself updated with change in Tax Laws & ensure compliance in proper spirit. So it’s time to download all the GST returns filed along with Electronic Credit ledger to save the money which you might have been losing till now.
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Article Contributed by: Team Core Tax- The Taxation Experts
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