ITC Utilization As Per GST ITC Rules | Tally Solutions

ITC Utilization

  • 1. About Input Tax Credit
  • 2. Input Tax Scheme Equation
  • 3. Input Tax Credit relationship / restrictions
  • 4. ITC utilization as per GST ITC rules
  • 5. Can IGST credit be used for SGST?

1. 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 with 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.

2. Input Tax Scheme Equation

input-tax-scheme-equation

3. 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 it relationship from each of these under GST. And it also becomes necessary to know the restrictions that operates on ITC utilization to avoid penalties under GST law on misuse of input tax credit.

  • Relationship:
  • 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: Used for
      1. Further supply of such vehicles/ conveyances, or
      2. Transportation of passengers, or
      3. To conduct training for driving/ flying/ navigating such vehicles/ conveyances
      4. 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
    a. Food and beverages
    b. Outdoor Catering
    c. Beauty Treatment
    d. Health Services
    e. 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 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).

4. 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. It also delineates the situations where in the credits are restricted to be utilized within the house of group. This could be well understood from the following table.

House name: Closed Group / Not available for set off (in house)
House members:
  • Central GST (CGST)
  • State GST (SGST)
  • Union Territory GST (UTGST)
  Availability for set off: Suggested by the group name, this group is not available for set off in house meaning:
  • CGST cannot be used to set off SGST and vice versa
  •  UTGST would be the same like SGST and hence it cannot be used to set off CGST
                 
House name: Open Group/ Available for cross utilization.
House members:
  • Integrated GST (IGST)
  • Central GST (CGST)
  • State GST (SGST)
  • Union Territory GST (UTGST)
Availability for set off:
Tax Order of Adjustment as per GST ITC rules
IGST
  • IGST
  • CGST
  • SGST
CGST
  • CGST
  • IGST
SGST
  • SGST
  • IGST
UTGST
  • UTGST
  • IGST

5. 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 appropriate form on the common portal.



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