New set off rules can create problems in cash flows : GST

New set off rules can create problems in cash flows : GST

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New set off rules can create problems in cash flows : GST

A fine-tune in the rule on availing GST credits may create cash flow problems for some companies starting this month. The change is in the way companies can set off tax paid on raw material against those levied on the goods they sell, which is meant to avoid double counting of taxes.


According to the new credit utilisation mechanism, companies can set off their tax liabilities by first utilising their integrated GST(IGST) credits before availing of their central GST(CGST) and state GST (SGST) credits. Previously, companies could set off IGST credits against both CGST and SGST.


This has started to result in situations where companies end up paying GST in cash even though they have credits on their books. This amendment has become apoint of worry for most industry players as they may now have to pay SGST liability in cash even in scenarios where prior to this amendment, these could be paid by utilising credits. 


The reason being the introduction of this new rule of utilisation of IGST credit,” said Abhishek Jain, tax partner at EY India. IGST credits are accumulated by companies that import goods or source them from vendors in other states. Collections under IGST are shared between the central and the state governments. Tax experts said the regulation change could result in litigation

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