Home » GST » Articles » New Provision relating to set off of input tax credit (ITC) under GST

Introduction:-

The GST Regimes has three tax mechanism i.e. CGST, SGST/UTGST, IGST. Igst is leviable on inter-state supplies. While CGST & SGST/UTGST leviable on intra state supplies. Section 49(5) of CGST Act, prescribes the manner of utilization of credit remains in Electronic credit ledger. However, Due to amendment in CGST Act, manner of utilization has changed. The new section 49A introduced by the CGST amendment Act, 2018 deals with this.

As per provision prior to amendment i.e. as per section 49(5), the manner of utilization of Balance in electronic credit ledger is as under.

Particulars

1st

2nd

3rd

IGST

IGST

CGST

SGST

CGST

CGST

IGST

——-

SGST

SGST

IGST

——-

For, Example. If I have my Input tax credit and Liability for the February 2019 as under.

Particulars

ITC

Liability

IGST

100000

90000

CGST

20000

25000

SGST

20000

25000

In this situation the manner of utilization is as under (we are discussing the situations prior to amendments)

Particulars

Liability

              set off

Balance in Electronic credit ledger after sett off

Additional cash payment

IGST

CGST

Rs.

IGST

CGST

SGST

Rs.

IGST

90000

90000

0

0

CGST

25000

5000

20000

0

0

SGST

25000

5000

20000

0

0

Here after setting of liabilities as per section 49(5), there is no need for cash outflow for payment of tax.

Now let’s see the situation after insertion of Section 49A:-

Section 49A start with wording “Notwithstanding anything contained in section 49”. It means it had overriding effect over section 49. Further, Section 49A specifies that ITC of CGST, SGST/UTGST shall be utilized only after ITC of IGST is fully utilized first. It means we can utilize the ITC of CGST, SGST/UTGST only after balance of IGST in Electronic Credit ledger becomes NIL.

As per provision after amendment (effect of section 49A), the manner of utilization of Balance in electronic credit ledger is as under.

Particulars

1st

2nd

3rd

IGST

IGST

CGST

SGST

CGST

IGST

CGST

——-

SGST

IGST

SGST

——-

Now let’s solve out above example, after the considering the amendment.

In this situation the manner of utilization is as under (we are discussing the situations after amendment)

Particulars

Liability

              Set off (liability)

Balance in Electronic credit ledger after Set off

Additional cash payment

IGST

CGST

SGST

IGST

CGST

SGST

Rs.

IGST

90000

90000

0

0

0

0

CGST

25000

10000

15000

——–

5000

0

SGST

25000

0

——–

20000

5000

Here after utilization of credit, there is balance in electronic credit ledger for CGST with Rs 5000/- but, we cannot utilized it against SGST. Further, liability towards SGST of 25000 is not fully set off here. Therefore, there is need for payment of SGST worth Rs. 5000 in the form of cash. There is need for additional working capital which is not needed prior to amendment. Therefore, this amendment may block the working capital of businesses.  The person who has significant purchases from outside the state, he may have working capital crunch due to this amendment.

Disclaimer: – The above discussion is our view under the certain provisions of GST law. Readers may take due precaution and consider the provision of GST Law before taking the decision. The above article cannot be considered as our professional advice.

Written By:

VIRAL SHAH
G-401,Abjibapa Greens,
100 ft. Viratnagar Road,
Near Manmohan Park,
Nava Nikol,Ahmedabad-382350.
CONTACT: +91 8460387114, +91 8160174657

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