ITC Utilization

SHARE

Tally Solutions, Nov-25-2019

About Input Tax Credit

Input Tax Credit can be said to be one of the key elements of the entire Goods and Service Tax (GST) framework with one of the major USPs i.e. flawless flow of credits in the entire GST chain.

The present indirect taxation system suffers from cascading tax effect due to non-availability of credit at various points in the supply chain. However, under the GST regime, credit of GST is expected to be available at every stage in the entire supply chain.

Input Tax Scheme Equation

input-tax-scheme-equation

Input Tax Credit relationship / restrictions

To know about ITC utilization, it becomes important to first know that Input tax credit operates on which supplies and how it derives its relationship from each of these under GST. And it also becomes necessary to know the restrictions that operate on ITC utilization to avoid penalties under GST law on misuse of input tax credit.

  • Restrictions on ITC utilization: 
    As per GST ITC rules, ITC utilization on purchase of Motor Vehicles and other conveyance except when they are purchased and used for transportation of goods, or making the following taxable services: 

    • Further supply of such vehicles/ conveyances, or

    • Transportation of passengers, or

    • To conduct training for driving/ flying/ navigating such vehicles/ conveyances

    • Transportation of goods

The ITC utilization except for the above cases in respect of Capital Goods such as Motor Vehicles and other conveyance is restricted under GST.

  • Any supply of goods and services being the ones mentioned below, the ITC utilization is restricted in these cases as well which are:

Inputs on goods

Inputs on Services availed

  • Food and beverages
  • Outdoor Catering
  • Beauty Treatment
  • Health Services
  • Cosmetic and Plastic Surgery  

Government notified services of obligatory nature for employer to employees such as

  • Renting of cab for employees
  • Life/health insurance scheme for employees
  • Note: As per GST ITC rules, ITC utilization is not allowed, except when used in outward supply of same category
  • No credit shall be allowed for the following services:
  • Membership of the club
  • Health and Fitness Centre
  • Travel Benefits to employees
  • Works Contract (other than plant & machinery)

  • Construction of Immovable Property (other than plant & machinery)

  • Where GST being paid under composition scheme

  • Goods or services or both received by a non-resident taxable person except on goods imported by him

  • Goods lost or stolen/ written off/ disposed off by way of gift or free samples

  • Tax paid after adjudication where there involves fraud etc (Detention and Fraud Cases).

ITC utilization as per GST ITC rules

We know that Input Tax credit system under GST is a stream that carries Credit flows from supplier to recipient to be used in setting of the liability in the GST returns and it extends to inter-state supplies as well.

GST ITC rule 49 speaks about order in which these credits be used.

Old ITC Set-off order

  • Amount of Input Tax Credit on account of IGST shall first be utilized for the payment of IGST then for payment of CGST and then for payment of SGST / UTGST.

  • Amount of Input Tax Credit on account of CGST shall first be utilized for the payment of CGST then for payment of IGST. Such amount cannot be used for payment of SGST / UTGST.

  • Amount of Input Tax Credit on account of SGST / UTGST shall first be utilized for the payment of SGST / UTGST then for payment of IGST. Such amount cannot be used for payment of CGST.

  • SGST / UTGST payable or Input tax credit of SGST / UTGST will be calculated state-wise i.e. ITC of SGST in one state cannot be utilized for payment of SGST of another state.

  • Input tax credit cannot be used for payment of interest, penalty, fees or any amount payable under the act other than the GST in the manner mentioned above.

New ITC Set-off order from April,2019

Input tax credit

IGST Output liability

CGST Output liability

SGST Output liability

IGST

(I)

(II) – In any order in any proportion

(III) Input tax credit on account of Integrated tax to be completely exhausted mandatorily

CGST

(V)

(IV)

Not allowed

SGST/UTGST

(VII)

Not permitted

(VI)


With the new rule, the IGST credit needs to be completely utilised before off setting it with CGST or SGST. The order of setting off ITC of IGST can be done in any proportion and any order towards setting off the CGST or SGST output after utilising the same for IGST output.

Can IGST credit be used for SGST?

From the reading of the table above it is clear that IGST credit balance if any can be used to set off SGST liability. But it is important to note here that any IGST balance which is topped up by paying into cash ledger will be available only for such top-up made.

Let us suppose that IGST balance is updated by paying into cash ledger then such balance could be only used to settle IGST liability and not CGST or SGST. In these cases, if the assessee pays wrongly by debiting wring ledgers then the only solution available is to Claim the refund amount by making an application in the appropriate form on the common portal.

Obsessed With Delight
Inspired by the way you work, Tally is designed to delight you. Try out the all new
Tally.ERP 9 Release 6.6