Input Tax Credit Utilization Order& set off from February to September 2020 and General rules

ITC rule 36(4)- Provisional ITC rule for the period up to January 2020

As per rule 36(4) a registered person can avail Input tax credit (ITC) of a maximum of

  1. 110% of the total ITC in GSTR2A
  2. Actual ITC available based on invoice

Whichever is lower

For example:

Mr. Rahul has made total purchase of Rs. 1,00,000 for the month of January 2020 on which Rs. 18,000 GST has been paid. At the time of filing return, it has been observed that GSTR2A is showing total ITC of Rs. 10,000.

Now, we have to calculate Mr. Rahul can avail maximum ITC of:

Computation of Maximum ITC Mr. Rahul Can avail for the Month of January 2020:

Particulars Amount
Actual ITC as per Invoices available (A) 18,000
Total ITC as per GSTR2A   (B) 10,000
Total provisional ITC as per rule 36(4) (110% of B)   (C) 11,000
Maximum ITC that can be availed by Mr. Rahul (Lower of A or C)   (D) 11,000
Total ITC not allowed in GSTR3B of January 2020 (A – B)   (E) 7,000

Now the above rule has changed from February 2020

Changes in ITC rule 36(4)- Provisional ITC rule for the period February to September 2020

As per Notification No. 30/2020- Central Tax In the said rules, in sub-rule (4) of rule 36, the following proviso shall be inserted, namely:- “Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.”.

As per above notification the earlier condition of restriction on availing ITC of upto 110% of the ITC available in GSTR2A or the actual ITC, lower one from any of the both has been relaxed for the period of February, March, April, May, June, July and August, 2020 and such adjustment shall be made in the return of September 2020.

That means supplier can avail full ITC for the month of February, March, April, May, June, July and August, 2020 and the adjustment arising out of rule 36(4) for the above period shall be made in the return of September 2020.

For Instance, Mr. Rahul has following ITC available as per the invoices and GSTR2A for February to September 2020:

Month Actual ITC as per Invoice ITC as per GSTR2A Maximum ITC that can be availed
February 100 60 100
March 100 60 100
April 100 60 100
May 100 60 100
June 100 60 100
July 100 60 100
August 100 60 100
September* 100 60 60 [To be compared with actual ITC as per invoice  and 100% of ITC in GSTR2A i.e. 100 or 60 (100% of 60) whichever is lowest]

*The example has taken ITC & GSTR2A for September month only, however in actual ITC & GSTR2A of February, March, April, May, June, July and August, needs to be added and difference if any needs to be paid

Utilization of Input tax credit general rule:

Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.

Manner of utilization of ITC:

The ITC available in the electronic credit ledger shall be utilized as per section 49(5) of the CGST act 2017. The amount of input tax credit available in the electronic credit ledger of the registered person on account of:

  • Credit of IGST to be utilized for payment of IGST, CGST and SGST sequentially: The IGST credit available in the electronic credit ledger shall be first utilized towards the payment of IGST liability and the amount remaining if any may be utilized towards the payment of CGST and SGST or UTGST liability as the case may be in that order.
  • Credit of CGST to be utilized for payment of CGST and IGST sequentially: The CGST credit available in electronic credit ledger shall be first utilized towards the payment of CGST liability and the amount remaining if any may be utilized towards the payment of IGST tax liability.
  • Credit of SGST to be utilized for payment of SGST and IGST sequentially: The SGST credit available in electronic credit ledger shall be first utilized towards the payment of SGST liability and the amount remaining if any may be utilized towards the payment of IGST tax liability. However, the ITC on account of state shall be utilized towards payment if IGST liability only when there is no credit available of CGST towards payment of IGST.
  • Credit of UTGST to be utilized for payment of UTGST and IGST sequentially: The UTGST credit available in electronic credit ledger shall be first utilized towards the payment of UTGST liability and the amount remaining if any may be utilized towards the payment of IGST tax liability. However, the ITC on account of Union territory shall be utilized towards payment if IGST liability only when there is no credit available of CGST towards payment of IGST.

Note:

  1. The CGST credit shall not be utilized towards payment of UTGST of SGST tax liability, and
  2. The SGST or UTGST credit shall not be utilized towards payment of CGST tax liability.
  3. As per section 49A of the CGST act, the input tax credit on account of CGST, SGST or UTGST shall be utilized towards the payment of IGST, CGST, SGST or UTGST as the case may only after the ITC available on account of IGST has been utilized fully towards such payment.

Sequence of Utilization of ITC at a glance:

The sequence of utilization of ITC has been summarized below:

Input tax credit First to be utilized for payment of If balance, can be utilized for Remarks
IGST IGST CGST or SGST/ UTGST at option of taxable person CGST or SGST/ UTGST credit can be utilized only after credit of IGST is fully utilized
CGST CGST IGST CGST credit can be utilized only after all credit of IGST is utilized
SGST/ UTGST SGST/ UTGST IGST SGST/ UTGST credit can be utilized only after all credit of IGST is utilized. Besides this SGST/ UTGST credit can be utilized for payment of IGST only after the ITC of CGST has been utilized fully.

Examples to explain Utilization of ITC

Example 1:

Mr. Rahul, a registered supplier is engaged in supplying goods in the neighboring states from his registered office located in Mumbai. He had made the following transaction in the month of March 2020:

  1. Interstate Supply of goods of Rs. 18,00,000
  2. Purchase of goods locally from registered person of Rs. 10,00,000

The above transactions are exclusive of taxes. The rate of tax is CGST 9%, SGST 9% and IGST 18%.

Let us compute the net GST to be payable by Mr. Rahul

Computation of GST payable by Mr. Rahul

Particulars Amount
IGST payable on Sale of goods outside Maharashtra (18,00,000 X 18%) 3,24,000
Less:  
Input tax credit CGST on purchase of goods locally [CGST can be cross utilized payment of IGST as per section 49(5)] 90,000
Input tax credit SGST on purchase of goods locally [SGST can be cross utilized payment of IGST as per section 49(5)] 90,000
Net GST payable in cash for the month of March 2020 1,44,000

Note:

  1. CGST shall be first utilized towards payment of CGST and the amount remaining, if any, be utilized towards the payment of IGST as per section 49(5).
  2. SGST shall be first utilized towards payment of SGST and the amount remaining, if any, be utilized towards the payment of IGST as per section 49(5).

Example 2:

Mr. Rahul a supplier of goods, pays GST under regular scheme. He has made the following transaction in the month of March 2020.

Sales:

  • Interstate supply of goods of Rs. 18,00,000
  • Intrastate supply of goods of Rs. 10,00,000

Purchase:

  • Intrastate supply of goods of Rs. 11,00,000
  • Interstate supply of goods of Rs. 8,00,000

The above transactions are exclusive of taxes. The rate of tax is CGST 9%, SGST 9% and IGST 18%.

Opening balance of Input tax credit:

CGST: 40,500

SGST: 40,500

IGST: 90,000

Let us compute the net GST to be payable by Mr. Rahul

Computation of GST payable by Mr. Rahul

Particulars CGST SGST IGST
GST payable on Sale of goods      
GST on Interstate sale (18,00,000 X 18%) 3,24,000
GST on Intrastate sale (10,00,000 X 18%)(9% CGST & 9% SGST) 90,000 90,000
Total GST liability on Sales                                                            (A) 90,000 90,000 3,24,000
Less: Input Tax Credit      
Opening Balance 40,500 40,500 90,000
GST on Interstate purchase (11,00,000 X 18%)   1,98,000
GST on Intrastate purchase (8,00,000 X 18%)(9% CGST & 9% SGST) 72,000 72,000
Total GST Credit on purchase                                                        (B) 1,12,500 1,12,500 2,88,000
Net GST payable in cash for the month of March 2020        (A – B) (22,500) (22,500) 36,000
Less: Balance of CGST to be utilized towards payment of IGST (1st) 22,500 (22,500)
Less: Balance of SGST to be utilized towards payment of IGST (1st) 13,500 (13,500)
Net GST payable in cash for the month of March 2020 9,000

Note:

  1. CGST shall be first utilized towards payment of CGST and the amount remaining, if any, be utilized towards the payment of IGST as per section 49(5).
  2. SGST shall be first utilized towards payment of SGST and the amount remaining, if any, be utilized towards the payment of IGST as per section 49(5).

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