Analysis of New Rule 88A –Order of Utilization of input tax credit along with numeric illustrative comparison pre and post amendments.

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. This may provide some relief to the business community, which has sensed an increase in there working capital requirement due to blockage of credit by the amendment made in section 49 vide first amendment act made effective from 1st FEB 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:

Liability IGST CGST SGST/UGST Remarks
ITC-IGST 1st 2nd 3rd 2nd 3rd 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.

Comments:

 As per amendment act 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.

  • “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.”

Liability IGST CGST SGST/ UGST Remarks
ITC -IGST 1st 2nd / 3rd 2nd 3rd ITC of IGST to be exhausted first than the only ITC of CGST or SGST/UGST can be utilized for respective payments.
ITC- CGST 2nd 1st X
ITC- SGST 2nd X 1st The credit of SGST/UGST will be utilized for the payment IGST only when there is no other ITC available.
  • Let’s understand the changes by an illustrative numeric example below:
Old set-off rules-prior to the amendment in section 49
New set-off rules (After First Amendment Act)
Latest set-off  (After insertion of Rule 88A)
Old set-off rules
IGST
CGST
SGST
New set-off rules (After First Amen-dment Act)
IGST
CGST
SGST
Latest set-off  (After insertion of Rule 88A)
IGST
CGST
SGST
Output liability
500
500
500
Output liability
500
500
500
Output liability
500
500
500
Input credit (including opening)
750
350
350
Input credit (including opening)
750
350
350
Input credit (inclu-ding opening)
750
350
350
Priority of utilisation :
Priority of utilisation :
Priority of utilisation :
Intra head credit utilisation
-500
-350
-350
Inter head credit utilisation
-500
-250
0
Inter head credit utilisation
-500
-150
-100
Inter head credit utilisation
-150
-100
Utilised from
IGST
Utilised from
IGST
– Utilised from
IGST
IGST
Intra head credit utilisation
-250
-350
Intra head credit utilisation
-350
-350
Balance Input credit
0
0
0
Balance Input credit
0
100
0
Balance Input credit
0
0
0
Payable
0
0
50
Payable
0
0
150
Payable
0
0
50

Comments:

By looking at the above comparison under a different set of provision, we can clearly point out that the earlier position of setoff under earlier sec.49 (before amendment act) has been restored by the insertion of new rule 88A.

Thank you.

CA Ramandeep Singh Bhatia, GSTIND GLobal Solutions LLP, Faculty NACIN & IDTC

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FCA, B.com (Nagpur Un.), Diploma in System Audit (DISA) Certification Course by ICAI - IFRS, IDT, GST, Bank Concurrent Audit, Legal drafting & Litigation • He has qualified Chartered Accountant in year 2010 and has been practicing in Raipur since then in the field of Indirect tax. Dur View Full Profile

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3 Comments

  1. E G ALEX says:

    My GST output Tax for June – Rs.1,81,238.00
    My GST Input Tax ” Rs. 46,775.00
    ” IGST Output 780.00
    ” IGST Input ” 1,38,248.00
    Can you please tell me, sir, the amount I will have to pay to the Department as Tax.

  2. Rahul Roongta says:

    Hi Ramandeep. Thanks for the illustrative example. Really makes the scenario clear.
    However, I have a query. In the example for set-off as per Rule 88A, after exhaustion of IGST credit of 500 for set-off of IGST liability, you have utilised IGST credit of 150 towards CGST liability set-off and then remaining IGST credit of 100 for SGST liability set-off. As per the rule, utilization of IGST credit for set-off of CGST and SGST liability can be in any order. But where does it specify that IGST credit can be utilized partially for CGST and SGST liability in any order?
    Please clarify.
    Thanks in advance.

    1. Vikash Khara says:

      Mr Rahul,
      You are correct that, Rule 88A has not specify that IGST credit can be utilised partially for CGST & SGST.
      However, it has also not specify that you cannot utilised partially for CGST & SGST.
      The Rule 88A simply says that in any order and only requirement is that IGST credit should be utilised and exhaust first before utilising the credit of CGST & SGST.
      So any order may implies:- anything as below:-
      1. 50% CGST & 50% SGST
      2. Whole CGST & Nothing SGST
      3. Whole SGST & Nothing CGST
      4. First CGST & then remaining SGST or
      5. First SGST & then remaining CGST
      Others experts may provide their opinion.

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