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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.

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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.

GST Return Filing

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.

input tax credit

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:

ITC under GST

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:

e-Invoicing

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

About the author

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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