GST ITC Set off – Where is ease of Business?

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GST ITC Set off – Where is ease of Business?

 

Introduction

Just when we began to get familiar with the rules regarding Input Tax Credit of GST, the government has brought some changes with regard to the utilization of Input Tax Credit. Although the amendments made are quite simple, they are capable of affecting the credit claimed. Let us have a closer look at these changes-

Amendments

The criteria for setting off of Input Tax Credit (ITC) has been changed under GST through Central Goods & Services Tax (Amendment) Act 2018, which has been made effective from 1st February 2019.

Following new sections have been inserted through CGST (Amendment) Act 2018:

As per Section 49A,

Notwithstanding anything contained in section 49, 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 towards such payment.

As per Section 49B,

Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilization of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.

Comparison of Old and New Rules

As per old rules, following was the priority of set-off of ITC was as below:

  1. For CGST Output – First set off through ITC of CGST, then IGST
  2. For SGST Output – First set off through ITC of SGST, then IGST
  3. For IGST Output – First set off through ITC of IGST, then CGST & then SGST

 

As per CGST (Amendment) Act 2018, the priority of set-off of ITC is as below:

  1. For CGST Output- First set off through ITC of IGST, then CGST
  2. For SGST Output – First set off through ITC of IGST, then SGST
  3. For IGST Output – First set off through ITC of IGST, then CGST & then SGST

 

Rules of Set Off till The Month of January 2019 Rules of Set Off from the Month of February 2019
Payment for First set off from Then set off from Payment for First set off from Then set off from
IGST IGST CGST and SGST IGST IGST CGST and SGST
CGST CGST IGST CGST IGST CGST
SGST SGST IGST SGST IGST SGST

 

For better understanding let us take an example:

A Supplier has a following GSTR-3B Liability for January 2019:

Payable under Head Output Tax Liability
IGST Rs. 600
CGST Rs. 600
SGST Rs. 600
Total Rs. 1,800

 

ITC Available:

Input under Head Input Tax Available
IGST Rs. 800
CGST Rs. 600
SGST Rs. 400
Total Rs. 1,800

 

Before 01.02.2019 the set-off is done via this way: No GST is to be Payable

 

Details IGST CGST SGST
Liability 600 600 600
Set-off:      
IGST 600   200
CGST   600  
SGST     400
Net Payable Nil Nil Nil
ITC Available (800-600-200) Nil (600-600) Nil (400-400) Nil

 

Note: Input Credit of IGST will be 1st utilized against IGST and thereafter balance available will used for payment of SGST. Hence NIL Liability has arisen.

 

After 01.02.2019 (Section 49A) set-off will be as under – Supplier need to Pay Rs 200 from its pocket despite of having ITC available

 

Details IGST CGST SGST
Liability 600 600 600
Set-off:      
IGST 600 200
CGST 400
SGST 400
Net Payable Nil Nil 200
ITC Available (800-600-200) Nil (600-400) 200 Nil

 

Note: Input Credit of IGST will be 1st utilized against IGST and also 1st needed to be set-off against CGST and after then CGST input credit can be set-off against CGST.

It implies that as a result of the amendment, the supplier will need to pay a tax of Rs. 200.

Conclusion:

Due to Section 49A the liability of the suppliers will increase and they will have to face more liquidity issues but this will also increase GST Collection and hence will be beneficial to the Government.

 

 

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