Input Tax Credit (ITC) Setting off Rules changed from 1st Feb, 2019 under GST

The government has amended CGST Act 2017 vide CGST Amendment Act 2018 with various changes w.e.f and one of the important amendment was made in Section 49 of CGST Act by introducing new section 49A after the section 49, which is as under:

49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized 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 utilized fully towards such payment.

Section 49 (5) of CGST Act 2017 speaks about manner of utilising Input Tax Credit (ITC) for payment of GST output Tax liability, e.g IGST can be Set off against IGST and then CGST and SGST, CGST can be set off against CGST and then against IGST, and SGST can be set off against SGST and then against IGST.

But now the government has changed the order of set-off by introduction of section 49A, and now IGST Credit should be set-off(utilised) fully before taking any set-off of CGST or SGST.
Which means earlier CGST/SGST ITC was used to set-off CGST /SGST liability, as the case may be, but now IGST Credit has to be 1st utilised fully for payment of IGST then for CGST and then for SGST liability as the case may be, even before utilisation of ITC of CGST or SGST.

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For better understanding let us take an example:

A Supplier have a following GSTR-3B Liability for January 2019

Payable under HeadOutput Tax Liability
IGSTRs. 500
CGSTRs. 500
SGSTRs. 500
TotalRs. 1,500

ITC Available

Input under HeadInput Tax Available
IGSTRs. 700
CGSTRs. 500
SGSTRs. 300
TotalRs. 1,500

Before 01.02.2019 the set-off is done via this way : No GST is to be Payable

DetailsIGSTCGSTSGST
Liability500500500
Set-off:
IGST500200
CGST500
SGST300
Net PayableNilNilNil
ITC Available(700-500-200) Nil(500-500) Nil(300-300) Nil

Note: IGST Input Credit will 1st utilise against IGST and thereafter balance available will used for payment of SGST, Hence NIL Liability is to be Paid by Supplier.

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

DetailsIGSTCGSTSGST
Liability500500500
Set-off:
IGST500200
CGST300
SGST300
Net PayableNilNil200
ITC Available(700-500-200) Nil(500-300) 200(200-200) Nil

Note: IGST Input Credit will 1st utilise against IGST and also 1st need to be set-off against CGST and after then CGST input credit can be set-off against CGST. 
It means by amending the section 49A Supplier need to pay Tax of Rs. 200.

Due to Section 49A the Liability of Suppliers will increase and they will have to face more Liquidity issues but this will also Increase GST Collection.

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Author: admin

BharaTax is an online Blog portal for reporting all the latest articles, judgments, Circulars, orders, and notifications relating to Taxation Laws in India.

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