ITC Utilization as per New Method with Examples

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.

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.

  • 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 Protal thorugh its tweeter account has informed that now GST Protal is updated as per New System of ITC Utilization. All Registered persons are required to file its GST Return as per New system of ITC utilization from 1st July 2019.

    ITC utilization

    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.

    MANNNER OF ITC UTILIZATION AS PER NEW METHOD:

    1. First IGST Credit is to be fully utilized and exhausted as per below order - (b) to (d)
    2. IGST Credit is to be first utilised against IGST Liability After
    3. After nullifying IGST liability against IGST Credit, if any IGST Credit is available, same can be utilised against CGST Liability and SGST Liability, in any order and in any proportion.
    4. Balance IGST Credit, if any remaining after (b) and (c) above, is to be carried forward to next tax period.
    5. Once IGST Credit is completed exhausted, then Credit of CGST and SGST can be utilised as per below order – (f) to (k)
    6. CGST Credit is to be first utilised against CGST Liability
    7. After nullifying CGST liability against CGST Credit, if any CGST Credit is available, same can be utilised against IGST Liability, if any pending after (a) to (c)
    8. Balance CGST Credit, if any remaining, is to be carried forward to next tax period.
    9. Then SGST Credit is to be first utilised against SGST Liability
    10. After nullifying SGST liability against SGST Credit, if any SGST Credit is available, same can be utilised against IGST Liability, if any pending after (a) to (c) and (g).
    11. 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 : -

    ITC on Account of

    IGST Liability

    CGST Liability

    SGST Liability

    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:

    Liability / ITC Head

    Output Liability

    Input Tax Credit

    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:

    ITC on Account of

    IGST Liability

    CGST Liability

    SGST Liability

    ITC Carried Forward to Next Month

    Total

    IGST

    5000

    750

    750

    -

    6500

    CGST

    -

    750

    Not Permitted

    250

    1000

    SGST

    -

    X Not Permitted

    750

    250

    1000

    Total

    5000

    1500

    1500

    500


    Option 2:

    ITC on Account of

    IGST Liability

    CGST Liability

    SGST Liability

    ITC Carried Forward to Next Month

    Total

    IGST

    5000

    1000

    500

    -

    6500

    CGST

    -

    500

    Not Permitted

    500

    1000

    SGST

    -

    X Not Permitted

    1000

    -

    1000

    Total

    5000

    1500

    1500

    500


    Option 3:

    ITC on Account of

    IGST Liability

    CGST Liability

    SGST Liability

    ITC Carried Forward to Next Month

    Total

    IGST

    5000

    500

    1000

    -

    6500

    CGST

    -

    1000

    Not Permitted

    -

    1000

    SGST

    -

    X Not Permitted

    500

    500

    1000

    Total

    5000

    1500

    1500

    500


    • STRATEGIES OF ITC UTILIZATION:

    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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    Chartered Accountant | Website

    He has authored book on GST, titled as “Handbook on GST For Beginners”. Also he has authored Two E Book on - GST E Way Bill and GST Amendment Act.

    He has conducted seminars on GST, Indirect Tax & Foreign Trade Policy at – FIEO, ICAI, MSME, CII, MCCIA, WMTPA, Institute of Cost Accountant of India, Various association, colleges and Institutions etc

    He has conducted 250+ seminars on IDT across India, for Professional, Students, Officers, Practitioners etc

    He is instrumental in obtaining Circular from Department.
    Also, he is Recognized Faculty for GST by ICAI. He is member of IDT Study group Pune of ICAI. He is member of “Taxation Committee”, of MCCIA.

    He is Chairman of ‘CGST – L & R – Committee’ of WMTPA

    He is regularly writing the articles which are published in various leading Taxation Magazine and online portal.

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