Two new sections via amendment of CGST Act have changed calculations for set off of ITC alongwith empowerment for manner and utilisation of ITC in future. The same are reproduced below for your reference :

“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.

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.”.

Let’s analyse impact of said sections on businesses which is going to take its effect from 1st February, 2019. We witness majorly four types of entities on basis of their GST liability:

  1. Regular cash payment of GST with no carry forward of any head of GST balances.
  2. Regular cash payment of GST with carry forward of any head of GST balances.
  3. Irregular cash payment of GST with staggered carry forward of any head of GST balances.
  4. No cash payment of GST – Regular carry forward of balances.

New set-off rules absolutely won’t disturb to the entities covered under point (1) above. It would surely impact other category of entities mentioned above. Let’s take one of its example to understand the same.

Old set-off rules IGST CGST SGST New set-off rules IGST CGST SGST
Output liability 100 100 100 Output liability 100 100 100
Input credit (including opening) 150 70 70 Input credit (including opening) 150 70 70
Priority of utilisation : Priority of utilisation :
Intra head credit utilisation -100 -70 -70 Inter head credit utilisation -100 -50 0
Inter head credit utilisation -30 -20 – Utilised from IGST
– Utilised from IGST IGST Intra head credit utilisation -50 -70
Balance Input credit 0 0 0 Balance Input credit 0 20 0
Payable 0 0 10 Payable 0 0 30

As you would have noticed, working capital of (2), (3) and (4) type of entities would be disturbed on account of new setoff rules. Hence it is advised wherever possible to plan your purchases in such a way to avoid loss of interest on such working capital blocked.

Author Bio

Qualification: CA in Practice
Company: Sagar V Shah & Associates
Location: Vadodara, Gujarat, IN
Member Since: 28 Mar 2019 | Total Posts: 2

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