Method of Utilization of Input Tax Credit (ITC) in GST
- On April 21, 2019
- Input Tax credit, ITC, Utilization, Utilization of ITC
WHAT IS INPUT TAX CREDIT (ITC) IN GST?
Goods and Services Tax (GST) is considered the biggest financial reforms in India. Input Tax Credit in brief, ITC under GST is a credit which is available to supplier to set off the tax he has paid on purchase of goods from output tax on sale of such goods. Hence, the tax will levy on the value added which results in avoiding double taxation. In simple words, Input Credit means at the time of paying tax on sales, you can reduce the tax you have already paid on purchases.
MANNER OF UTILIZING INPUT TAX CREDIT
Most importantly, the manner of utilization of ITC for payment of Output Tax Liability in GST has been a subject matter of change since last few months. The following is the brief summary of legal provisions relating to manner of utilization of ITC.
The mechanism of utilization of GST ITC From 01-07-2017 to 31-01-2019 (Section 49A of CGST Act) was as follows-
| Nature of Liability | 1st Step Utilization | 2nd Step Utilization | 3rd Step Utilization |
| IGST Output | IGST Input | CGST Input | SGST Input |
| CGST Output | CGST Input | IGST Input | – |
| SGST Output | SGST Input | IGST Input | – |
NEW RULES FOR UTILIZATION OF ITC IN GST
From 01-02-2019 to 31-03-2019 (Amended Section 49A of CGST Act) From 01-02-2019 the new rules for utilization of ITC are as follows.
| Nature of Liability | 1st Step Utilization | 2nd Step Utilization | 3rd Step Utilization |
| IGST Output | IGST Input* | CGST Input | SGST Input |
| CGST Output | Any Remaining IGST Input to be fully utilized for CGST Output * | CGST Input | – |
| SGST Output | Any Remaining IGST input to be fully utilized for SGST Output* | SGST Input | – |
*The IGST input needs to be exhausted first in order of IGST Output, CGST Output and SGST output. From 01-04-2019 Onwards (Rule 88A of CGST Rules) Now w.e.f. 01-04-2019, again some changes are done in the rules relating to utilization of ITC which are as below.
| Nature of Liability | 1st Step Utilization | 2nd Step Utilization | 3rd Step Utilization |
| IGST Output | IGST Input* | CGST Input | SGST Input |
| CGST Output | Any Remaining IGST Input to be utilized for CGST Output * | CGST Input | – |
| SGST Output | Any Remaining IGST input to be utilized for SGST Output* | SGST Input | – |
*The IGST input needs to be exhausted first for IGST Output then in any order for CGST Output and SGST output. The above rules can be understood with following example. We are summarizing the effect of changes in rules in all the 3 cases above.
EFFECT OF CHANGES IN RULES
| Output Liability | ITC Available for utilization | ||
| CGST | 1,000/- | CGST | 100/- |
| SGST | 1,000/- | SGST | 100/- |
| IGST | 200/- | IGST | 1,500/- |
From 01-07-2017 to 31-01-2019 (Section 49A of CGST Act)
| Particulars | IGST | CGST | SGST |
| Output Liability | 200.00 | 1,000.00 | 1,000.00 |
| CGST Utilized | 0.00 | 100.00 | 0.00 |
| SGST Utilized | 0.00 | 0.00 | 100.00 |
| IGST Utilized | 200.00 | 900.00 | 400.00 |
| Cash Payment | 0.00 | 0.00 | 500.00 |
| ITC Balance Available | 0.00 | 0.00 | 0.00 |
From 01-02-2019 to 31-03-2019 (Amended Section 49A of CGST Act)
| Particulars | IGST | CGST | SGST |
| Output Liability | 200.00 | 1,000.00 | 1,000.00 |
| IGST Utilized | 200.00 | 1000.00 | 300.00 |
| CGST Utilized | 0.00 | 0.00 | 0.00 |
| SGST Utilized | 0.00 | 0.00 | 100.00 |
| Cash Payment | 0.00 | 0.00 | 600.00 |
| ITC Balance Available | 0.00 | 100.00 | 0.00 |
From 01-04-2019 Onwards (Rule 88A of CGST Rules)
| Particulars | IGST | CGST | SGST |
| Output Liability | 200.00 | 1,000.00 | 1,000.00 |
| IGST Utilized (Option Given to utilize in any manner) | 200.00 | 900.00 | 400.00 |
| CGST Utilized | 0.00 | 100.00 | 0.00 |
| SGST Utilized | 0.00 | 0.00 | 100.00 |
| Cash Payment | 0.00 | 0.00 | 500.00 |
| ITC Balance Available | 0.00 | 0.00 | 0.00 |
Thus, rule 88A now relieves the taxpayers from the hardships of new ITC utilization mechanism effective from 01-02-2019.
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