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.