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Utilization of Input Tax Credit under GST: Rule 88A, Section 49A and 49B

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Utilization of Input Tax Credit under GST: Rule 88A, Section 49A and 49B

Updates: 23 April 2019 -  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.
Circular 98-17-2019 dated 23rd April 2019

In February 2019, CBIC introduced section 49(A) Utilisation of input tax credit and Section 49(B) Order of utilisation of input tax credit under CGST Act 2018, thus laying new criteria for a registered person to discharge his/her GST liability. However, following the insertion of the amendment, many businesses raised a concern regarding the blockage and accumulation of credit under the CGST and SGST category. And such accumulation could further lead to cash flow issues wherein the suppliers would be required to pay the tax in cash even when they have the unutilised credit available in their electronic credit ledger.

Thus, in an attempt to ease the cash flow concern of trade industry in India, the government has notified relaxations in ITC set-off mechanism vide Notification number 16/2019 – Central Tax dated 29th March 2019 with the insertion of Rule 88A.

Utilization of ITC  before April 1, 2019(After introduction of Section 49A and 49B)

Effective February 1, 2019, Section 49A and 49B were introduced in the CGST Amendment Act 2018.

  • Section 49A: Utilisation of input tax credit
    Notwithstanding anything contained in section 49, 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 towards such payment.
  • Section 49B: Order of utilisation of input tax credit
    Notwithstanding anything contained in this Chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the Government may, on the recommendations of the Council, prescribe the order and manner of utilisation of the input tax credit on account of integrated tax, central tax, State tax or Union territory tax, as the case may be, towards payment of any such tax.”

Thus the order of utilization of ITC as per section 49A and 49B

ITC Available

First Set off (Output Liability)

Next Set off (Output Liability)

Not allowed to Set off

Impact of Section 49A and 49B

IGST

IGST

CGST first followed by SGST/UTGST

NA

IGST credit is to be utilised first against IGST liability then CGST liability and then SGST/UTGST liability.

CGST

IGST

 

CGST

SGST and UTGST

SGST

IGST

SGST

CGST

UTGST

IGST

UTGST

CGST

Thus, for example, if after setting of IGST Liability, IGST ITC credit available is Rs. 12,000 and CGST liability is Rs. 12,000 and SGST Liability is Rs. 2,000, then IGST credit will be utilised against CGST liability of Rs. 12,000. Thus balance SGST liability will be Rs. 2,000.

 Utilization of ITC  After April 1, 2019

Correcting an anomaly regarding input tax credit utilisation under Section 49A of the Central Goods and Services Tax (Amendment) Act, 2018, Rule 88A has been inserted (Notification Number 16/2019 – Central Tax dated 29th March 2019) in the CGST Amendment Act 2018.

Rule 88A: Order of utilisation 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”.

ITC Available

First Set off (Output Liability)

Next Set off Output Liability)

Not allowed to Set off

Impact of Rule 88A and related Proviso

IGST

IGST

CGST/SGST/UTGST (in any order)

NA

IGST credit is to be utilised first against IGST liability then against CGST/SGST/UTGST liability in any order.  Taxpayer has to exhaust ITC of IGST first followed by CGST/SGST/ UTGST credit.

IGST liability will be settled off first compulsory.

CGST

IGST

 

CGST

SGST and UTGST

SGST

IGST

SGST

CGST

UTGST

IGST

UTGST

CGST

Thus, for example, if after setting of IGST Liability, IGST ITC credit available is Rs. 12,000 and CGST liability is Rs. 12,000 and SGST Liability is Rs. 2,000, then IGST credit can be utilised against the SGST liability of Rs. 2,000 and CGST Liability of Rs. 10,000. Thus balance CGST liability will be 2000.

Key Notes:

  • ITC of IGST should be utilised in full before utilising any other credit.
  • Taxpayers should note that Utilisation of IGST ITC shall be allowed against any other tax liability only when IGST liability has been fully paid first.
  • With the introduction of this rule, the taxpayer after adjusting the IGST liability, can adjust remaining IGST ITC with CGST/SGST/UTGST liability as per their discretion.

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About Vaishali Dedhia

Vaishali

Vaishali Dedhia, a Chartered Accountant, has been working with IRIS for over 7 years and is currently the lead Functional Analyst and Subject Matter Expert for IRIS' GST offerings. She has also been assisting the clients in return filing related queries. Prior to GST, she was involved in compliance and data analysis for the US markets. In her leisure time, Vaishali likes reading novels, listening music and hanging around with friends, family.

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R.CHENTHIL 4 months, 1 week ago

You provide good updates on gst and your site is quite helpful. thank you

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C A PUROHIT 4 months, 1 week ago

SIR
WE HAVE IN OUR COMPANY MORE THAN THE LIABILITY ITC WITH THE GST DEPT AND THAT TOO HUGE AMOUNT .HOW TO GET THAT AMOUNT REFUND TO MAINTIAN CASH FLOW OF OUR COMPANY.OUR MONEY LYING IDLE
WITH THE GOVT GST DEPT AND THAT GIVE US LARGE LOSS OF INTEREST AND CASH FLOW PROBLEM.
KINDLY ADISE US HOW TO GET THE CREDIT AMOUNT LYING WITH THE GST DEPT REFUND .
THANKS
PUROHIT

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Manoj Jain 4 months ago

Accumulation of Input Tax Credit happens when the tax paid on inputs is more than the output tax liability. Such accumulation will have to be carried over to the next financial year till such time as it can be utilised by the registered person for payment of output tax liability. However, the GST Law permits refund of unutilised ITC in two scenarios, namely if such credit accumulation is on account of zero rated supplies or on account of inverted duty structure, subject to certain exceptions.

Refund of unutilised input tax credit is allowed only in following two cases

a) Zero rated supplies made without payment of tax: As per Section 16(3) of the IGST Act, 2017, a registered person making zero rated supply is eligible to claim refund under either of the following options, namely: –

• Supply of goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or

· Supply of goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied.

b) Inverted duty structure: Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council.

HOW TO CLAIM GST REFUND:-

An application for GST Refund shall be filed online in form GST RFD 01 and shall be file within a maximum of 2 years from the relevant date.

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Prathviraja Rao B 4 months ago

Good understanding...

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Manoj 3 months, 2 weeks ago

Great Work and Easy to understand. Please
keep on providing updates. Thank You.

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Manoj 3 months, 2 weeks ago

Great Work.Please keep on providing updates.
Thank You.

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