New set off rules under GST

With the recent amendment by way of introducing Sec 49A under CGST Amendment Act, 2019 there are several other problems which the industry might face. Let us try to understand this by way of an example.

Suppose, A Taxpayer has OUTPUT CGST & SGST of Rs. 250000 each. INPUT CGST & SGST of Rs. 150000 each. INPUT IGST of Rs 235000.

Before Amendment:- ITC Adjustment rule was as under:

 Step 1:

The first Step is to adjust INPUT IGST with OUTPUT IGST. Then INPUT CGST with OUTPUT CGST. Then INPUT SGST with OUTPUT SGST.

Step 2:

 Now, Taxpayer was entitled to adjust INPUT CGST & SGST (if excess) with OUTPUT IGST. Also he was entitled to adjust INPUT IGST (if excess) firstly with OUTPUT CGST and then OUTPUT SGST. Also INPUT of CGST & SGST were not adjustable with OUTPUT SGST & CGST respectively.

After Amendment:- Due to application of Sec 49A our Adjustment was as Under:

 Step 1:

Firstly adjust INPUT IGST with OUTPUT IGST. Then, INPUT IGST with OUTPUT CGST. If still INPUT IGST left then with OUTPUT SGST

Step 2:

 Then INPUT CGST with OUTPUT CGST Then INPUT SGST with OUTPUT SGST

One thing which is similar with the before amendment case is, INPUT of CGST & SGST are not adjustable with OUTPUT SGST & CGST respectively.

Problem/Drawback due to amendment :

Hence ITC Balance in CGST – Rs. 135000

SGST Payable in Cash – Rs 100000

On the one hand, the taxpayer has already Rs. 135000 in his ITC balance and on the other hand he has to pay Rs 100000 by cash on monthly basis.

This thing is seriously causing a liquidity problem in company because at first place your money gets blocked in ITC and on the other hand you had to pay the amount in cash. This problem will get only bigger with passage of time. Thus, this new set off rule will not be that beneficial to the Entities.