Amendment in GST ITC Set off Rules and Impact Analysis

Prakash Matre
Prakash Matre at September 30, 2022

The government has amended the CGST Act 2017 vide CGST Amendment Act 2018, one of the most important change is the new itc set off rules in GST notification, new order to set-off GST credit, w.e.f 1st February 2019. According to this new rule, GST credit set off rules shall be fully utilized before utilizing the credit of CGST and SGST.

Impact of Amendment

Rules of Set Off till January 2019

Rules of Set Off from 1st February 2019

Payment for 1st set off from 2nd set off from Payment for 1st set off from 2nd set off from
IGST IGST CGST and SGST IGST IGST CGST and SGST
CGST CGST IGST CGST IGST CGST
SGST SGST IGST SGST IGST SGST

Let us understand this with an example

Credit of

IGST - Rs. 200

CGST - Rs. 50

SGST - Rs. 50

Output liability of

IGST - Rs. 100

CGST - Rs. 100

SGST - Rs. 100

As per the earlier GST credit set off rules, CGST & SGST credit can be utilized to set off the liability of CGST & SGST, respectively and balance can be paid through IGST credit. And the taxpayer has to pay nothing in cash.

But, as per new GST ITC set-off rules, IGST credit of 200 shall be utilized towards the payment of output liability of Rs. 100 of IGST and Rs. 100 of CGST.

This will lead to the accumulation of credit under CGST of Rs. 50 that can be carry forward along with this the SGST output liability of Rs. 50 will remain which shall be paid in cash.

Impact of New GST Set Off Rules on Businesses

There can be 5 cases (GST set off rules 2022) depending upon the nature and transaction of the business

  1.  Latest IGST set off rules 2022, the purchase and sale both are interstate then there will be no impact on the business.
  2.  When the purchase is interstate & intrastate and sale is intrastate then in such case CGST credit will accumulate that can be carried forward to the next month. Along with this, there will be an increase in SGST liability (which has to be paid in cash)
  3.  If the purchases are intrastate and sales are Interstate then there will be no impact on the business.
  4.  When the sales and purchases both are intrastate then there will be no impact on the business.
  5.  If a business purchases and sales the good or/and services interstate and intrastate then the credit of CGST will accumulate (carry forwarded to the next month). In addition to this SGST output liability of the business will increase (which has to be paid in cash).
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