The input tax credit utilization rule has undergone a huge roller coaster ride since introduction of the Goods and Service Tax Law. Every registered taxpayer dealing with the GST would be much concerned about the input tax credit utilization rules since it directly affects its finance and working capital at a large.
Stage-wise provisions dealing with input tax credit utilization rules amendment is being summarized hereunder –
- Section 49 (5) of the Central Goods and Service Tax Act, 2017;
- Insertion of section 49A and 49B made effective from 1st February, 2019; and
- Insertion of rule 88A to the Central Goods and Service Tax Rules, 2017 made effective from 1st April, 2019.
Rather than discussing the old provisions relating to the input tax credit utilization rules, let’s get into the nitty-gritty of newer provisions made effective from 1st April, 2019.
EFFECT OF NEWLY INSERTED RULE 88A –
Rule 88A to the Central Goods and Service Tax Rules, 2017 was introduced vide the Central Goods and Service Tax (Second Amendment) Rules, 2019 (notification no. 16/2019 – Central Tax dated 29th March, 2019). The basic reason for insertion of rule 88A is that the order of utilization of input tax credit as per old section 49A resulted in blockage of funds and to overcome the same rule 88A was inserted.
The gist of the provisions of rule 88A of the Central Goods and Service Tax Rules, 2017 is being pointed out herein below –
- An Input tax credit of IGST should be first utilized for payment of IGST;
- The remaining balance of input tax credit can be used towards the payment of CGST and / or SGST in any order;
- An Input tax credit of IGST should be fully utilized only than input tax credit of CGST, SGST or UTGST can be utilized.
Understanding the above provisions of rule 88A in a tabular format –
| TAX PAYMENT | ORDER OF UTILISATION OF INPUT TAX CREDIT | |
| FIRST | SECOND | |
| IGST | IGST | CGST / SGST
(credit of IGST can be utilized in any order) |
| CGST | IGST | CGST |
| SGST | IGST | SGST |
Below figurative examples would clear up the effect of rule 88A –
Example 1
| TAX LIABILITY | INPUT TAX CREDIT | PAYMENT OF TAX | REMAINING BALANCE IN INPUT TAX CREDIT | ||
| ELECTRONIC CASH LEDGER | ELECTRONIC CREDIT LEDGER | ||||
| 1st | 2nd | ||||
| IGST –
INR 10,000 |
IGST –
INR 70,000 |
NIL | 10,000
(ITC of IGST) |
NIL | Remaining balance of ITC of IGST is 60,000 (i.e. 70,000 – 10,000) which needs to be utilized first.
|
| CGST –
INR 50,000 |
CGST –
INR 10,000 |
NIL | 40,000
(ITC of IGST)
|
10,000
(ITC of CGST) |
Out of the remaining balance of ITC of IGST, INR 40,000 is used towards payment of CGST. Final remaining balance of ITC of IGST would be INR 20,000 (i.e. 60,000 – 40,000) |
| SGST –
INR 50,000 |
SGST –
INR 10,000 |
20,000 | 20,000
(ITC of IGST)
|
10,000
(ITC of SGST) |
The balance of ITC of IGST is fully utilized. |
Example 2
| TAX LIABILITY | INPUT TAX CREDIT | PAYMENT OF TAX | REMAINING BALANCE IN INPUT TAX CREDIT | ||
| ELECTRONIC CASH LEDGER | ELECTRONIC CREDIT LEDGER | ||||
| 1st | 2nd | ||||
| IGST –
INR 10,000 |
IGST –
INR 70,000 |
NIL | 10,000
(ITC of IGST) |
NIL | Remaining balance of ITC of IGST is 60,000 (i.e. 70,000 – 10,000) which needs to be utilized first.
|
| CGST –
INR 50,000 |
CGST –
INR 10,000 |
20,000 | 20,000
(ITC of IGST)
|
10,000
(ITC of CGST) |
Out of the remaining balance of ITC of IGST, INR 20,000 is used towards payment of CGST. Final remaining balance of ITC of IGST would be INR 40,000 (i.e. 60,000 – 20,000) |
| SGST –
INR 50,000 |
SGST –
INR 10,000 |
NIL | 40,000
(ITC of IGST)
|
10,000
(ITC of SGST) |
The balance of ITC of IGST is fully utilized. |
Example 3
| TAX LIABILITY | INPUT TAX CREDIT | PAYMENT OF TAX | REMAINING BALANCE IN INPUT TAX CREDIT | ||
| ELECTRONIC CASH LEDGER | ELECTRONIC CREDIT LEDGER | ||||
| 1st | 2nd | ||||
| IGST –
INR 10,000 |
IGST –
INR 70,000 |
NIL | 10,000
(ITC of IGST) |
NIL | Remaining balance of ITC of IGST is 60,000 (i.e. 70,000 – 10,000) which needs to be utilized first.
|
| CGST –
INR 50,000 |
CGST –
INR 10,000 |
10,000 | 30,000
(ITC of IGST)
|
10,000
(ITC of CGST) |
Out of the remaining balance of ITC of IGST, INR 30,000 is used towards payment of CGST. Final remaining balance of ITC of IGST would be INR 30,000 (i.e. 60,000 – 30,000) |
| SGST –
INR 50,000 |
SGST –
INR 10,000 |
10,000 | 30,000
(ITC of IGST)
|
10,000
(ITC of SGST) |
The balance of ITC of IGST is fully utilized. |
VERY NICE EFFORTS OF TAX GURU
CGST / SGST
(credit of IGST can be utilized in any order)
i thing correction is required in above statement because IGST payment is first adjusted with IGST then,CGST and Then SGST.
Thanks for the examples. but
1.Please give me One Example with SGST Payable,
2.I have IGST, CGST, SGST Inputs and i have outputs also, inputs adjusted against outputs IGST First, CGST Second SGST Third. In SGST asking for payment even there is excess input in CGST (IGST utilized Fully) should i make payment or should i manually adjust IGST and CGST with SGST output.