Even though GST is single Tax System, but it has ingredients of 3 Taxes ( CGST / SGST / IGST ) and Cess. Therefore taxpayer is required to pay correct tax as well as utilise Input Tax Credit (ITC) as per provisions given. we will broadly discussed on ITC in GST applicable provisions. Difference between old and new ITC utilization.
In case of wrong payment of taxes, as per Sec 77 of CGST Act 2017, registered person is required, to pay correct tax and he is required to apply for refund of old taxes.
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APPLICABLE PROVISIONS:
Sec 49(5), Sec 49A, Sec 49B of CGST Act 2017, Rule 88A of CGST Rules 2017 and Circular No 98/17/2019 dated 23rd April 2019, GST prescribe the manner of utilization of ITC against GST Liability.
Said manner was amended by CGST Amendment Act 2018, in order to minimise fund settlement on account of IGST between Central Government and State Government with effect from 1st Feb 2019.
However GST Portal was not updated as per new method of ITC utlization and therefore, as per above referred circular, ITC utlization as per old method is allowed to be continued till GST Portal is updated.
OLD ITC UTILIZATION Vs NEW ITC UTILIZATION
On 1st July 2019, GST Portal through its tweeter account has informed that now GST Portal is updated as per New System of ITC Utilization. All Registered persons are required to file its GST Returns as per New system of ITC utilization from 1st July 2019.
In this article, we will be understanding ITC utilization mechanism as per New System with example. Below is graphical explanation of ITC Utilization as per OLD and New Method.
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MANNER OF ITC UTILIZATION AS PER NEW METHOD:
First IGST Credit is to be fully utilized and exhausted as per below order - (b) to (d)
IGST Credit is to be first utilised against IGST Liability After
After nullifying IGST liability against IGST Credit, if any IGST Credit is available, same can be utilized against CGST Liability and SGST Liability, in any order and in any proportion.
Balance IGST Credit, if any remaining after (b) and (c) above, is to be carried forward to next tax period.
Once IGST Credit is completed exhausted, then Credit of CGST and SGST can be utilised as per below order – (f) to (k)
CGST Credit is to be first utilized against CGST Liability
After nullifying CGST liability against CGST Credit, if any CGST Credit is available, same can be utilized against IGST Liability, if any pending after (a) to (c)
Balance CGST Credit, if any remaining, is to be carried forward to next tax period.
Then SGST Credit is to be first utilized against SGST Liability
After nullifying SGST liability against SGST Credit, if any SGST Credit is available, same can be utilized against IGST Liability, if any pending after (a) to (c) and (g)
Balance SGST Credit, if any remaining, is to be carried forward to next tax period.
Above amended ITC utilization is specified, in order to reduce fund settlement between Central Government and State Government.
Now GST Portal is also updated, as per New ITC utilization system.
MATRIX OF ITC UTILIZATION AS PER NEW METHOD:
To make it easy to understand and remember, below matrix is given of ITC Utilization. Numerical Serial number denotes, order of respective ITC Utilization against respective GST Liability : -
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|---|---|---|---|---|---|---|---|
IGST ITC | 1 | 2 - In any order and manner between CGST/SGST, till IGST is completed exhausted | 2 - In any order and manner between CGST/SGST, till IGST is completed exhausted | ||||
CGST ITC | 4 | 3 | X Not Permitted | ||||
SGST ITC | 6 | X Not Permitted | 5 |
Example:
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|---|---|---|---|---|---|
IGST | 5000 | 6500 | |||
CGST | 1500 | 1000 | |||
SGST | 1500 | 1000 | |||
Total | 8000 | 8500 |
Below are the various ways in which we can utilize ITC. Same is explained as under:
Option 1:
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|---|---|---|---|---|---|---|---|---|---|---|---|
IGST | 5000 | 750 | 750 | - | 6500 | ||||||
CGST | - | 750 | X Not Permitted | 250 | 1000 | ||||||
SGST | - | X Not Permitted | 750 | 250 | 1000 | ||||||
Total | 5000 | 1500 | 1500 | 500 |
Option 2:
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|---|---|---|---|---|---|---|---|---|---|---|---|
IGST | 5000 | 1000 | 500 | - | 6500 | ||||||
CGST | - | 500 | X Not Permitted | 500 | 1000 | ||||||
SGST | - | X Not Permitted | 1000 | - | 1000 | ||||||
Total | 5000 | 1500 | 1500 | 500 |
Option 3:
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|---|---|---|---|---|---|---|---|---|---|---|---|
IGST | 5000 | 500 | 1000 | - | 6500 | ||||||
CGST | - | 1000 | X Not Permitted | - | 1000 | ||||||
SGST | - | X Not Permitted | 500 | 500 | 1000 | ||||||
Total | 5000 | 1500 | 1500 | 500 |
STRATEGIES OF ITC UTILIZATION:
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Since there are multiple ways, in which ITC of IGST can be apportioned between CGST and SGST, below strategies is to be adopted:
- Based on availability of CGST credit, IGST Credit is to be used against CGST Liability
- Based on availability of SGST credit, IGST Credit is to be used against SGST Liability
- While doing it, goal should be minimum cash payment of any of CGST / SGST Liability
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