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All about order of utilization of Input Tax Credit under GST

All about order of utilization of Input Tax Credit under GST

CBDT has come up with many amendments , since the applicability of GST Act, one of the major amendment which has come into effect from 1st February, 2019 is the insertion of sec 49A and 49B and rule 88A. So lets understand the amendment and its implementation in your business.

  1. Sec 49A states that “the ITC of IGST has to be utilized completely before ITC of CGST/SGST can be utilized for discharge of any tax liability”.
  2. However, Sec 49A does not talk about the order of utilization of ITC and hence provision of sec 49 remains applicable for it, which states that “credit of Integrated tax has to be utilized first for payment of Integrated tax, then Central tax and then State tax in that order mandatorily.

Lets understand this with the help of an example:

Amount of ITC available and output liability under different tax heads:

 

GST Liability

Credit Availaible

1st Setoff

2nd Setoff

Liability to be paid in Cash

Balance ITC

IGST

10000

15000

IGST-10000

 

 

 

CGST

6000

2000

IGST-5000

CGST-1000

 

5000

SGST

6000

2000

SGST-2000

 

4000

 

 

As understood from the above example , that the insertion of only sec 49A led to the situation, where a tax payer has to discharge his tax liability on account of one type of tax (say State tax) through electronic cash ledger, while the ITC on account of other type of tax (say Central tax) remains un-utilized in electronic credit ledger.

  1. To overcome this situation, sec 49B is inserted with Rule 88A , which allows utilization of ITC of IGST towards the payment of CGST and SGST, or as the case may be, Union territory tax, in any order subject to the condition that the entire ITC on account of IGST is completely exhausted first before the ITC on account of CGST and SGST can be utilized.

The impact of insertion of Sec 49B with Rule 88A is illustrated hereunder:

 

GST Liability

Credit Availaible

1st Setoff

 

2nd Setoff

 

Liability to be paid in Cash

Balance ITC

IGST

10000

15000

IGST-10000

 

 

 

 

CGST

6000

2000

IGST-2500

(Either CGST or SGST, in any order)

CGST-2000

1500

Nil

SGST

6000

2000

IGST-2500

SGST-2000

1500

Nil

 

 Key Takeaways:

  1. IGST Credit has to be completely utilized before utilisation of CGST and SGST credit for any liability i.e. (Either IGST, CGST or SGST)
  2. IGST Credit has to be utlised 1st for IGST liability and then for CGST and SGST ,in any order.
  3. CGST credit can be utilized only for CGST liability.
  4. SGST credit can be utilized only for SGST liability.

 

Disclaimer -The provisions explained above belong solely to the author and not necessarily represent or reflect the views of any other committee or other group or individual.

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