ITC Utilization

GST - We call it 1 Nation 1 Tax. But it is made of 3 Taxes. IGST, CGST and SGST.

We pay GST on head by head basis i.e. IGST, CGST and SGST.

Now, we all know that we deduct the input Tax Credit of the GST paid on Input purchase of Goods and services from output tax on Sales to get the net GST liability.

But, it is very important that we pay GST in correct head of IGST, CGST or SGST.

Along with that we need to be careful while taking ITC. As far as ITC is concerned, there are rules for Manner of utilizing ITC, which we need to follow.

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.

Provisions Applicable:

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 minimize fund settlement on account of IGST between Central Government and State Government with effect from 1st Feb 2019.

Manner for utilizing ITC is as follows: 1. IGST Credit is to be fully utilized and exhausted.

a. IGST Credit is to be first utilized against IGST Liability

b. After that, if any IGST Credit is available, it can be utilized against CGST Liability and SGST Liability, in any order and in any proportion.

c. Balance IGST Credit, if any, is to be carried forward to next tax period.

Once IGST Credit is completed exhausted, then Credit of CGST and SGST can be utilized.

2a. CGST Credit is to be first utilized against CGST Liability

b. After that, if any CGST Credit is available, it can be utilized against IGST Liability,

c. Balance CGST Credit, if any, is to be carried forward to next tax period.

3a. Then SGST Credit is to be first utilized against SGST Liability

b. After that, if any SGST Credit is available, it can be utilized against IGST Liability.

c. Balance SGST Credit, if any, 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.

Check the following Matrix for manner and order in which the ITC can be utilized.

Matrix is given with the purpose of easy understanding and remembering. Numerical serial numbers denote, order of respective ITC Utilization against respective GST Liability

IGST	CGST	SGST
IGST (1)	IGST (4)	IGST (6)
CGST (2)*	CGST (3)	XXXX
SGST (2)*	XXXX	SGST (5)

Let Us Understand it with practical Example

GST	Output Tax Liability	Input Tax Liability
IGST	0	3,88,053
CGST	2,39,390	26,178
SGST	2,39,390	65,000

Portal will Auto set off ITC as follows

		ITC AVAILABLE
		IGST	CGST	SGST	Paid in cash
		3,88,053	26,178	65,000
GST	Liability
IGST	0	0			0
CGST	239390	239390 (1)			0
SGST	239390	148663 (2)		65000 (3)	25727
ITC Bal		0	26178	0

We can see from the table that ITC of IGST is 1st utilized against CGST Liability and balance of ITC of IGST is set off against SGST.

Therefore, ITC of CGST is not utilized at all as it is already paid through ITC of IGST leaving ITC of CGST of 26178 as it is.

SGST liability is still left to pay. So now, ITC of SGST is utilized 65,000. Still SGST liability is not fully paid through ITC. Therefore, 25,727 of the SGST liability is to be paid in cash.

But, we have the option to utilize ITC of IGST in any proportion between CGST and SGST.

To minimize the GST liability we can utilize ITC of IGST in following manner:

		ITC AVAILABLE
		IGST	CGST	SGST	Paid in cash
		3,88,053	26,178	65,000
GST	Liability
IGST	0	0			0
CGST	239390	213663	25727		0
SGST	239390	174390		65000	0
ITC Bal		0	451	0

Here, It can be seen that, IGST is utilized in a manner to make SGST liability zero utilizing maximum of ITC of CGST.

To conclude, we can say that following are the Strategies to be adopted for utilization of ITC and minimizing the GST liability to be paid in cash.

1. IGST credit to be used against CGST Liability, based on availability of CGST ITC.

2. IGST credit to be used against CGST Liability, based on availability of CGST ITC.

3. Purpose should be minimum cash payment of any of CGST / SGST Liability

Disclaimer:- The opinions presented are exclusively those of the author CA Pratibha Varia. The material in this piece is intended purely for informational purposes and for individual, non-commercial consumption. It does not constitute expert guidance or an endorsement by any organization. The author, the organization, and its associates are not liable for any form of loss or harm resulting from the information in this article, nor for any decisions made based on it. Furthermore, no segment of this article or newsletter should be employed for any intention unless granted in written form, and we maintain the legal right to address any unauthorized utilization of our article or newsletter.