UTILIZATION OF INPUT TAX CREDIT UNDER GST WITH EFFECT FROM 29.3.2019 IN INDIA
The Goods and Services Tax Act, 2017 came into force
with effect from 1.7.2017 in India.
The Central Government has prescribed the following
method of utilization of Input Tax Credit at the time of introduction of GST in
India on 1.7.2017.
For taxpayers the Input Tax Credit should be
utilized in the following chronological order under reverse charge basis.
IGST
|
CGST
|
SGST
|
IGST
|
CGST
|
SGST
|
CGST
|
IGST
|
IGST
|
SGST
|
----
|
----
|
The IGST payment can be done utilizing ITC or by
cash. However, the use of ITC for payment of IGST will be done using the
following hierarchy, -
· First available ITC
of IGST shall be used for payment of IGST;
· Once ITC of IGST is
exhausted, the ITC of CGST shall be used for payment of IGST;
· If both ITC of IGST
and ITC of CGST are exhausted, then only the dealer would be permitted to use
ITC of SGST for payment of IGST.
· Remaining IGST
liability, if any, shall be discharged using payment in cash. GST System will
ensure maintenance of this hierarchy for payment of IGST using the credit.
The Taxpayers effecting inter-State inward supplies
of Goods are Services or both were paying IGST and they can utilise the IGST
available against IGST (only if they effect inter-State supply of Goods or
Services or both) and then they can utilise the remaining amount against CGST
and then SGST/UTGST.
The Central Government has now introduced new Rule 88-A. Order of Utilization of input tax
credit as shown below:
88. Identification number for each transaction.-(1) A unique identification number shall
be generated at the common portal for each debit or credit to the electronic
cash or credit ledger, as the case may be.
(2) The unique
identification number relating to discharge of any liability shall be indicated
in the corresponding entry in the electronic liability register.
(3) A unique
identification number shall be generated at the common portal for each credit
in the electronic liability register for reasons other than those covered under
sub-rule (2).
[88A. Order of utilization of input tax
credit.- Input tax credit
on account of integrated tax shall first be utilised towards payment of
integrated tax, and the amount remaining, if any, may be utilised towards the
payment of central tax and State tax or Union territory tax, as the case may be, in any order:
Provided that 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.] (Inserted vide Notification No. 16/2019-CT dated
29.03.2019.)
As
per the amended rules a Taxpayer can adjust the ITC as shown below:
For taxpayers the Input Tax Credit shall be utilized
giving first priority to IGST and the remaining towards CGST or SGST / UTGST at
the Taxpayer’s choice.
Utilization method of priority
|
IGST
|
CGST
|
SGST
|
First priority
|
IGST
|
IGST
|
IGST
|
Remaining amount next priority
|
CGST or SGST
|
SGST
|
CGST
|
The IGST payment can be done utilizing ITC or by
cash. However, the use of ITC for payment of IGST will be done using the
following hierarchy, -
· First available ITC
of IGST shall be used for payment of IGST;
· The remaining IGST
available if any may be utilized for CGST or SGST (at Taxpayer’s choice);
· The excess
available CGST or SGST must be utilized first for IGST and then for CGST or
SGST as the case may be.
The
Taxpayers are at liberty to utilize the excess Input Tax Credit under IGST
(after adjustment to IGST) to CGST or SGST by giving first priority towards
IGST.
The relevant Circular issued is given below for ready reference:
The relevant Circular issued is given below for ready reference:
Circular No. 96/17/2019-GST
F. No. CBEC – 20/16/04/2018 – GST Government of India Ministry of Finance
F. No. CBEC – 20/16/04/2018 – GST Government of India Ministry of Finance
Department
of Revenue
Central Board of Indirect
Taxes and Customs
GST
Policy Wing
****
To,
New Delhi, Dated the 23rd April 2019
The Principal Chief Commissioners
/ Chief Commissioners / Principal Commissioners / Commissioners
of Central Tax (All)
The Principal Director
Generals
/ Director Generals (All) Madam/Sir,
Subject: Clarification in respect
of utilization of input tax
credit under GST – Reg.
Section 49 was amended and Section 49A and Section 49B were inserted vide Central Goods
and Services Tax (Amendment) Act, 2018 [hereinafter referred to as the CGST
(Amendment) Act].
The amended provisions came into
effect from
1st February 2019.
2. Various representations have been received from the trade and industry regarding challenges being
faced by taxpayers due to bringing
into
force of section 49A of the Central
Goods and Services Tax Act, 2017 (hereinafter referred to as the
CGST Act). The issue has
arisen on account of order of utilization of input tax credit of integrated tax in a
particular order, resulting in accumulation of input tax credit for one kind of tax (say
State tax) in electronic
credit ledger and discharge of liability for the other kind of tax (say Central tax)
through electronic cash
ledger in
certain scenarios. Accordingly, rule 88A was inserted in the
Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the CGST Rules) in exercise of the powers under Section 49B of the CGST Act vide notification No. 16/2019-
Central Tax, dated 29th March, 2019. In order to ensure uniformity in the implementation
of
the provisions of the law, the Board, in exercise of its powers conferred by
section 168 (1) of
the CGST Act, hereby clarifies
the issues raised as below.
3. The newly inserted Section 49A of the CGST Act provides that the input tax credit of
Integrated tax has to be utilized completely before input tax credit of Central tax / State tax
can
be utilized for discharge of any tax liability. Further, as per the provisions of section 49 of the
CGST Act, credit of Integrated
tax has
to be utilized first for payment of Integrated tax,
then Central tax and then
State tax in that order mandatorily. This led
to a situation, in
certain cases, where a taxpayer has to discharge his tax liability
on account of one type of tax (say State tax) through electronic cash ledger, while the input tax credit on account of other type
of tax (say Central tax)
remains un-utilized in
electronic
credit ledger.
4. The
newly inserted rule 88A in the CGST Rules allows utilization of input tax credit of Integrated tax towards the payment of Central tax and State tax, or as the case may be,
Union territory tax, in any order subject to the condition that the entire input tax credit on account of Integrated tax is completely exhausted first before the input tax credit on account of
Central tax or State / Union territory tax can be utilized. It is clarified that after the insertion of the said rule, the order of utilization of input tax credit will be as per the order (of
numerals) given
below:
Input tax
Credit on account of
|
Output
liability
on account
of
Integrated tax
|
Output
liability
on account
of
Central tax
|
Output
liability on account
of State tax / Union
Territory tax
|
Integrated tax
|
(I)
|
(II) – In any order and
in any proportion
|
|
(III) Input tax Credit on account of Integrated
tax to be completely exhausted mandatorily
|
|||
Central tax
|
(V)
|
(IV)
|
Not
permitted
|
State
tax
/
Union
Territory tax
|
(VII)
|
Not
permitted
|
(VI)
|
5. The following illustration would further amplify the impact of newly inserted rule
88A of the CGST Rules: Illustration:
Amount
of Input
tax Credit available and output liability
under
different tax heads
Head
|
Output Liability
|
Input tax Credit
|
Integrated tax
|
1000
|
1300
|
Central tax
|
300
|
200
|
State tax
/ Union Territory
tax
|
300
|
200
|
Total
|
1600
|
1700
|
Option 1:
Input tax
Credit on account of
|
Discharge of
output liability
on account of Integrated tax
|
Discharge of
output liability
on account of Central tax
|
Discharge of output
liability
on account of State tax
/ Union Territory tax
|
Balance
of
Input Tax
Credit
|
Integrated tax
|
1000
|
200
|
100
|
0
|
Input tax Credit on account of Integrated tax has been completely
exhausted
|
||||
Central tax
|
0
|
100
|
-
|
100
|
State tax
/
Union territory tax
|
0
|
-
|
200
|
0
|
Total
|
1000
|
300
|
300
|
100
|
Option 2:
Input tax
Credit on account of
|
Discharge of
output liability
on account of Integrated tax
|
Discharge of
output liability
on account of Central tax
|
Discharge of output
liability
on account of State tax
/ Union Territory tax
|
Balance
of
Input Tax
Credit
|
Integrated tax
|
1000
|
100
|
200
|
0
|
Input tax Credit on account of Integrated tax has been completely
exhausted
|
||||
Central tax
|
0
|
200
|
-
|
0
|
State tax
/
Union territory tax
|
0
|
-
|
100
|
100
|
Total
|
1000
|
300
|
300
|
100
|
6. Presently, the common portal supports
the order of utilization of input tax credit in accordance
with the provisions before implementation of the provisions of
the CGST (Amendment) Act i.e.
pre-insertion
of Section 49A and
Section 49B of
the CGST Act. Therefore, till the new order of utilization as per newly inserted Rule 88A of the CGST Rules is
implemented on the common portal, taxpayers may continue to utilize their input tax credit as
per
the functionality available on the common portal.
7. It is requested that suitable trade notices may be issued to publicize the contents
of this circular.
8. Difficulty, if any, in the implementation of this Circular may be brought to the notice
of the Board. Hindi version would follow.
(Upender Gupta)
Principal
Commissioner (GST)