Rules for Utilization of Input Tax Credit (ITC) have undergone a major change and considering its impact, this change will have on Working Capital Management, an explanatory note prepared by us about new Rules is given below :-

Old set off rules for ITC under GST were as follows: –

Payment for  First use  Then use
SGST tax SGST credit IGST credit
CGST tax CGST credit IGST credit
IGST tax IGST credit CGST credit and SGST credit

New set off rules for ITC under GST are as follows: –

As per new Rules, flexibility of using IGST credit is restricted and for a given Return period, such credit has to be exhausted fully for payment of all components of output GST liabilities before using any amount from CGST and SGST credits, so that later credits can be used only if IGST credit is insufficient to absorb all output GST liability for a given Return Period.

Accordingly Utilization of ITC under Revised set off rules has to be made according to following steps:-

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.

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 1and 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

M B Abhyankar & Co. – Email: – mbabhyankar@gmail.com

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7 Comments

  1. S.Ravikumar says:

    New ITC Utilization as per notification 2/2019 will effect from 01.02.2019, But there is no new utilization ITC is not updated in GST Portal .How we are follow old and new set of Liabilty of Itc .

  2. AkshayH says:

    Dear Sir, what is your view on the below:
    IGST ITC after utilising towards IGST output, can be utilised towards CGST or SGST at the option of the assessee in the ratio he so desires. Ex: I have Rs. 1,00,000 balance IGST ITC after IGST output set off, can i utilise Rs. 70,000 towards CGST & Rs. 30,000 towards SGST?
    Where is this restricted in the law?
    Also, is this applicable for March 2019 GSTR 3B due on 20th April 2019?

  3. ajit kumar datta says:

    but I want to know what step to be taken for IGST
    CGST SGST (RCM) payment and credit system ?
    Please explain in details

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