NEW MANNER OF UTILIZING INPUT TAX CREDIT (ITC) W.E.F. 29.03.2019

[Dr. Sanjiv Agarwal]

Section 49 of the CGST Act, 2017 contains provisions in relation to payment of tax, interest, penalty and other amounts.

Section 49 (5) of CGST Act, 2017 provides manner of utilizing Input Tax Credit (ITC) for payment of GST output tax liability, e.g IGST can be set off against IGST and then CGST and SGST, CGST can be set off against CGST and then against IGST, and SGST can be set off against SGST and then against IGST.

Prior to 1.2.2019

The amount under various heads of credit could be used in the following order of preference:

1. IGST can be used:
   1. For payment of tax as IGST
   2. For payment of tax as CGST
   3. For payment of tax as SGST
2. CGST can be used:
   1. For payment of tax as CGST
   2. For payment of tax as IGST, in case balance is available
3. SGST can be used:
   1. For payment of tax as SGST
   2. In case balance available, payment of tax as IGST

The following matrix depicts the manner of availing input tax credit prior to 1^st February, 2019, i.e. upto 31.01.2019:

Payment for	First set off from	Then set off from
SGST	SGST	IGST
CGST	CGST	IGST
IGST	IGST	CGST and SGST

W.e.f. to 1.2.2019

By CGST (Amendment) Act, 2018, section 49A was inserted w.e.f. 1.2.2019.

Accordingly, Government had changed the order of setoff of input tax credit by introducing section 49A w.e.f. 01.02.2019 according to which, IGST Credit was to be set off fully before taking any setoff of CGST or SGST, which meant that IGST Credit has to be first utilized fully for payment of IGST then for CGST and then for SGST liability as the case may be, even before utilization of ITC of CGST or SGST w.e.f. 1.2.2019.

The following matrix explains the manner of credit w.e.f. 01.02.2019 for any tax payments to be made:

Payment for	First set off from	Then set off from
SGST	IGST	SGST
CGST	IGST	CGST
IGST	IGST	CGST and SGST

Remedial Measures

Various quarters had represented before all necessary forums including PMO / MOF etc. to remove the hardship of taxpayer due to the amended provisions. Now, Ministry of Finance has come out with a possible solution by inserting new Rule 88A in CGST Rules to remove the hardship caused to taxpayers w.e.f. 1.2.2019.

W.e.f. 29.03.2019

Vide Notification No. 16/2019-CT dated 29.03.2019, following Rule 88A has been inserted which is effective from 29.03.2019 itself. It provides as follows:

“Rule 88A. Order of utilization of input tax credit.- Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:

Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully.”

Taxpayers may, therefore, note the following to be implemented w.e.f. 29.03.2019 which seeks to nullify the impact of change and even the provision before 1.2.2019.

1. ITC on IGST has to be first fully utilized towards IGST and balance towards CGST / SGST / UTGST.
2. For utilization of balance IGST credit towards CGST / SGST / UTGST, there is no order of set off as earlier prescribed.
3. Credit can be taken in any order as per convenience / requirement.
4. Set off ITC of CGST / SGST / UTGST can be utilized towards IGST, CGST, SGST or UTGST but only after fully exhausting the ITC of IGST.

Following tables illustrate the new provision:

1. Utilization of ITC w.e.f. 29.03.2019 (with no IGST outward liability)

	IGST	CGST	SGST / UTGST
Input tax available	100	100	100
Output tax payable	-	200	200
Under new rule 88A
IGST utilized	-	50	50
CGST utilized	-	100	-
SGST utilized		-	100
ITC Balance	-	-	-
Cash payment		50	50

2. Utilization of ITC w.e.f. 29.03.2019  (with IGST outward liability)

	IGST	CGST	SGST / UTGST
Input tax available	100	100	100
Output tax payable	50	50	50
Under new rule 88A
IGST utilized	50	25	25
CGST utilized	-	25	-
SGST utilized		-	25
ITC Balance c/f	-	25	25

Discussions to this article

[SHIVKUMAR SHARMA]

Sir

If i am not wrong ITC balance C/F should be CGST is ₹ 75/- & SGST is ₹ 75/- in the Table at the end of this article.

[Dr. Sanjiv Agarwal]

Dear Shivkumar Sharma ji ,

Kindly let us know how do you say ITC balance c/f should be 75 each ?

Regards ,

CA. Neha Somani

[Dr. Sanjiv Agarwal]

Dear Shivkumar Sharma ji,

Your view appears to be correct. Thanks for pointing out.

Regards ,

CA. Neha Somani

[SHIVKUMAR SHARMA]

Sir/Madam

My calculation is as under :

IGST CGST SGST

ITC balance a per Table 100 100 100

Less:ITC of GST is utilized for discharg of Liability 100

(IGST RS.50 + CGST ₹ 25 + SGST ₹ 25)

Less:ITC of CGST is utilized : 25

Less: ITC of SGST is utilized : 25

Balance C/F of ITC 0 75 75

[SHIVKUMAR SHARMA]

2. Utilization of ITC w.e.f. 29.03.2019 (with IGST outward liability)

	IGST	CGST	SGST / UTGST	TOTAL TAX
Input tax available	100	100	100	300
Output tax payable	50	50	50	150
Under new rule 88A
IGST utilized	50	25	25	100
CGST utilized	-	25	-	25
SGST utilized		-	25	25
ITC Balance c/f	0	75	75	150

 

ITC of IGST is available is ₹ 100

IGST utilized for payment of output tax as IGST:

IGST ₹ 50

CGST Rs,25 from balance of IGST

SGST ₹ 25 from balance of IGST

Total IGST utilized ₹ 100

IGST Credit balance is NIL

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ITC of CGST is available is ₹ 100

CGST utilized for payment of output tax ₹ 25

CGST Credit balance is ₹ 75

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ITC of SGST is available is ₹ 100

SGST utilized for payment of output tax ₹ 25

SGST Credit balance is ₹ 75

 

[Padmanaban M]

Sir

If IGST payable is more than the IGST input, what we have to do?

For example IGST ITC 100 and payable is 200, and CGST ITC 200 and payable 300 like SGST ITC 200 and payable 300. Can you explain how to utlilise.

[SHIVANSH MEHRA]

Great effort!

My view is that Rule 88A specifically mentions "in any order" which has a different legal interpretation from "in any manner". So in the present example, we cannot set off ₹ 25 each from CGST & SGST as it specifically mentions "in any order". We will have to set off whole balance of ₹ 50 from CGST or SGST.

If rule would have mentioned " in any manner" then we could have set off IGST (ITC) of ₹ 25 each from CGST and SGST.

[Dr. Sanjiv Agarwal]

Dear Padnaban M ,

The order of preference is IGST , CGST , SGST and cash.

Regards ,

CA. Neha Somani

[Dr. Sanjiv Agarwal]

Dear Mr. Mehra,

Yes, there is a difference in interpretation of “in any manner” and “in any order”. Here, the order refers to the order or sequence in which set off may be taken. The option lies with the taxpayer.

We expect CBIC to further clarify these aspects in near future by illustrations / FAQ’s.

Regards,

CA. Neha Somani