How is Input Tax Credit utilized?

how is input tax credit utilized

Input Tax Credit (ITC) is credit available to a person registered under Goods & Service Tax on payment of Input Tax. The amount of ITC in GST available in Electronic Credit Ledger which shall be adjusted against output tax liability of the taxpayer.

As per Rule 88A from a notification released by the Central Board of Indirect Taxes & Customs, taxpayers shall first use the Input Tax Credit available from Integrated Goods & Service Tax (IGST) to pay off all of their applicable IGST. Any Input Tax Credit remaining after setting off IGST can be used further towards paying CGST, SGST/UGST. It is mandatory to utilize the entire IGST available in electronic credit ledger before utilizing ITC on CGST or SGST. The order of setting off ITC of IGST can be done in any proportion and in any order towards setting off the CGST or SGST output after utilizing the same for IGST output.

 

Before the Implementation of Rule 88A the GST Input Tax Credit was utilized as follows:

Payment

First set off from Then set off from

IGST

IGST CGST & SGST/UTGST
CGST CGST

IGST

SGST/UTGST SGST/UTGST

IGST

 

After the implementation of Rule 88A the GST Input Tax Credit is utilized as follows:

Payment

First set off from Then set off from

IGST

IGST CGST & SGST/UTGST
CGST IGST

CGST

SGST/UTGST IGST

SGST/UTGST

 

Example:

Mr. A has the following tax liability and ITC for the tax period:

Type of GST Tax

Output Liability Input Tax Credit (ITC)

IGST

1000 2000

CGST

1000

600

SGST/UTGST 1000

600

TOTAL 3000

3200

.

Input Tax Credit of IGST can be utilized in 3 different cases:

Case 1: Set off of unutilized Integrated Goods & Service Tax (IGST) credit completely towards CGST:

Type of GST Tax

Liability Credit Available Set-off of Liability Balance to be paid in cash Balance credit available

IGST

1000 2000 1000 (From IGST)

CGST 1000 600 1000 (From IGST)*

600

SGST/UTGST 1000 600 600 (From SGST/UTGST

400

 

 

Case 2: Set off of unutilized Integrated Goods & Service Tax (IGST) credit completely towards SGST:

Type of GST Tax

Liability Credit Available Set-off of Liability Balance to be paid in cash Balance credit available

IGST

1000 2000 1000 (From IGST)
CGST 1000 600 600 (From CGST) 400

SGST/UTGST 1000 600 1000 (From IGST)*

600

 

Case 3: Set off of unutilized Integrated Goods & Service Tax (IGST) credit Proportionately towards CGST & SGST Liability equally:

Type of GST Tax

Liability Credit Available Set-off of Liability Balance to be paid in cash Balance credit available

IGST

1000 2000 1000 (From IGST)
CGST 1000 600 500 (From IGST)* & 500 (From CGST)

100

SGST/UTGST 1000 600 500 (From IGST)* & 500 (From CGST/UTGST)

100

 

Note:

  • It is advisable to follow Case 3 to optimize credit utilization.
  • Central Goods & Services Tax (CGST) credit cannot be adjusted against State Goods & Service Tax (SGST) Payable. Similarly, State Goods & Service Tax (SGST) Credit cannot be adjusted against Central Goods & Services Tax (CGST) Payable.

In case of any query related to GST Return or to undertake the process of claiming Input Tax Credit, Contact your Trustworthy Advisor ‘Manthan Experts’.

Click Here to File GST Return


Knowledge Source:

Input Tax Credit (ITC) Under GST

New GST rule 86B, Restriction on ITC Availment

 

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