INCOME TAX NOTES

Manner of Utilization of ITC ( INPUT TAX CREDIT )

GST INPUT tax credit utilization

New Manner of utilization of ITC 

Its based in notification issued by CGST Circular No. 98/17/2019 was issued on 23 April 2019 has clarified the order of ITC utilisation for each tax head. It further stated that until the new Rule 88A of the CGST Rules. Available from July 2019 returns onwards.

 Clarification in respect of utilization of input tax credit under GST – Reg. 

Section 49 was amended and Section 49A and Section 49B were inserted vide Central Goods and Services Tax (Amendment) Act, 2018 [hereinafter referred to as the CGST (Amendment) Act]. The amended provisions came into effect from 1 st February 2019.

AMit
In Simple Language:
CGST ACT 2017
Amend - Section 49 

Inserted - Section 49A & 49B & 

Rule 88A was inserted in the Central Goods and Services Tax Rules, 2017

2. Various representations have been received from the trade and industry regarding challenges being faced by taxpayers due to bringing into force of section 49A of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act). The issue has arisen on account of order of utilization of input tax credit of integrated tax in a particular order, resulting in accumulation of input tax credit for one kind of tax (say State tax) in electronic credit ledger and discharge of liability for the other kind of tax (say Central tax) through electronic cash ledger in certain scenarios. Accordingly, rule 88A was inserted in the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the CGST Rules) in exercise of the powers under Section 49B of the CGST Act vide notification No. 16/2019- Central Tax, dated 29th March, 2019. In order to ensure uniformity in the implementation of the provisions of the law, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues raised as below.

3. The newly inserted Section 49A of the CGST Act provides that the input tax credit of Integrated tax has to be utilized completely before input tax credit of Central tax / State tax can be utilized for discharge of any tax liability. Further, as per the provisions of section 49 of the CGST Act, credit of Integrated tax has to be utilized first for payment of Integrated tax, then Central tax and then State tax in that order mandatorily. This led to a situation, in certain cases, where a taxpayer has to discharge his tax liability on account of one type of tax (say State tax) through electronic cash ledger, while the input tax credit on account of other type of tax (say Central tax) remains un-utilized in electronic credit ledger.

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4. The newly inserted rule 88A in the CGST Rules allows utilization of input tax credit of Integrated tax towards the payment of Central tax and State tax, or as the case may be, Union territory tax, in any order subject to the condition that the entire input tax credit on account of Integrated tax is completely exhausted first before the input tax credit on account of Central tax or State / Union territory tax can be utilized.

In Simple Word : 
Section 49A - 1st IGST Credit 
Use in order  
1. - IGST  
2.- CGST / SGSST/ UGST

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Rule 88A in the CGST Rules allows utilization of input tax credit


Input tax Credit on account of
Output liability on account of Integrated tax
Output liability on account of Central tax
Output liability on account of State tax / Union Territory tax
Integrated tax (IGST)
1st
2nd - In any order and in any proportion
3rd - Input tax Credit on account of Integrated tax to be completely exhausted mandatorily
Centeral Tax (CGST)
5th
4th
NA!
State Tax (SGST / UGST )
7th
NA!
6th


A

Old Manner of utilization of ITC 

-- Input Tax Credit (ITC) of CGST and SGST/UTGST is available throughout the supply chain, but cross utilization of credit of CGST and SGST/UTGST is not possible, i.e. CGST credit cannot be utilized for payment of SGST/UTGST and SGST/UTGST credit cannot be utilized for payment of CGST. 
-- However, cross utilization is allowed between CGST/SGST/UTGST and IGST, i.e. credit of IGST can be utilized for the payment of CGST/SGST/UTGST and vice versa.


TaxWill
IGST
CGST
SGST or UGST
Step 1
IGST
CGST
SGST or UGST
Step 2
CGST
IGST
IGST
Step 3
SGST or UGST

Bal:
IGST
CGST
SGST or UGST




Question I: To understand business Impact due to the new rule
Fill in the blue portion

Suppose, Mr X has the following liability and input credit for a tax period as follows-
(all figures in INR)
Type of GST
Output Liability
Input Tax Credit
IGST
500
1,000
CGST
500
300
SGST/ UTGST
500
300
Total
1500
1600

how the ITC of IGST can be utilised in different ways from the following three scenarios?
1.     unutilised IGST credit completely towards CGST
2.     IGST credit completely towards SGST
3.     IGST credit partly towards CGST & SGST liability in an equal proportion
Answer :
Scenario 1: Set off of unutilised IGST credit completely towards CGST
(all figures in INR)
Type of GST
Liability
Credit available
Set-off of liability
Balance to be paid in cash
Balance credit available
IGST
500
1,000
500
(From IGST)
CGST
500
300
500*
(From IGST)
300
SGST/ UTGST
500
300
300
(From SGST/ UTGST)
200

Amit
Scenario 2: Set off of unutilised IGST credit completely towards SGST
(all figures in INR)
Type of GST
Liability
Credit available
Set-off of liability
Balance to be paid in cash
Balance credit available
IGST
500
1,000
500
(From IGST)
CGST
500
300
300
(From CGST)
200
SGST/ UTGST
500
300
500*
(From IGST)
300


Amit
Scenario 3: Set-off of unutilised IGST credit partly towards CGST & SGST liability in an equal proportion
(all figures in INR)
Type of GST
Liability
Credit available
Set-off of liability
Balance to be paid in cash
Balance credit available
IGST
500
1,000
500
(From IGST)
CGST
500
300
250*
(From IGST)
250
(From CGST)
50
SGST/ UTGST
500
300
250*
(From IGST)
250
(From SGST)
50