New ITC Set off rules under GST w.e.f. 01-02-2019

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On 29th January 2019, the Notification has been published in the Gazette regarding the applicability of the CGST Amendment Act, 2018. The Major change which will impact the Registered Taxable Persons and all other stakeholders is the order of utilization of ITC in the payment of monthly GST liability. In the amendment act, the new sections 49A and 49B have been inserted describing the order of utilisation of the ITC.

Section 49A – Utilisation of Input tax credit subject to certain conditions

 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.

In the new section 49A, it has been specified that the Input on account of IGST shall be utilised in the first place towards the offset of the liability on account of IGST, CGST and SGST.

Earlier rules applicable for set off of ITC for payment of GST liability upto 31st January 2019 as explained in the presentation

  1. IGST Liability 

IGST Liability –> IGST Input –> CGST Input –> SGST Input 

      2. CGST Liability

CGST Liability –> CGST Input –> IGST Input

      3. SGST Liability

SGST Liability –> SGST Input –> IGST Input

Now, with effect from 1st February 2019, the presentation of the New Set off rules is as follows:-

  1. IGST Liability

IGST Liability –> IGST Input –>CGST Input –> SGST Input

      2. CGST Liability –> IGST Input –> CGST Input

  1. SGST Liability –> IGST Input –> SGST Input

Let’s understand the concept with the help of examples the GST payable with both type of calculation.

  1. Having Sale (Local and Central) + Purchase (Local and Central)

Example – M/s. ABC Co., deals in trading of Stainless Steel items,  recorded the sale of Rs. 1,50,00,000/- in the month of January 2019, out of which the Rs. 80,00,000/- pertains to Inter State sale and Rs. 70,00,000/- pertains to Intra State sale. The GST rate is 18% on the items. The purchase for the month is Rs. 1,45,00,000/- , of which the Inter State Purchase is Rs. 105,00,000/- and the Intra State Purchase is Rs. 40,00,000/-.  Lets analyse the impact with both the method of calculations.

Rules of Set off of ITC applicable upto 31st January 2019

     
      

Outward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Outward supplies

70,00,000

Local Sale

12,60,000

  

Outward supplies

80,00,000

Central Sale

14,40,000

  
 

1,50,00,000

 

        27,00,000

  
      

Inward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Inward supplies

40,00,000

Local Purchase

7,20,000

  

Inward supplies

1,05,00,000

Central Purchase

18,90,000

  
 

1,45,00,000

 

26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

 IGST

CGST

SGST

Balance

IGST

    14,40,000

           14,40,000

                  –  

                –  

                  –  

CGST

      6,30,000

             2,70,000

3,60,000

 

                  –  

SGST

      6,30,000

             1,80,000

 

3,60,000

           90,000

      

Tax Credit Reconciliation

    

Particulars

 Opening Balance

 Credit availed 

 Credit utilised

 Closing Balance

 

IGST

               –  

18,90,000.00

18,90,000.00

                –  

 

CGST

               –  

3,60,000.00

3,60,000.00

                –  

 

SGST

               –  

3,60,000.00

3,60,000.00

                –  

 
 

               –  

       26,10,000.00

   26,10,000.00

                –  

 
        

Rules of Set off of ITC applicable w.e.f. 1st February 2019

Outward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Outward supplies

          70,00,000

Local Sale

              12,60,000

  

Outward supplies

          80,00,000

Central Sale

              14,40,000

  
 

       1,50,00,000

 

              27,00,000

  
      

Inward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Inward supplies

40,00,000

Local Purchase

7,20,000

  

Inward supplies

1,05,00,000

Central Purchase

18,90,000

  
 

1,45,00,000

 

              26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

 IGST

CGST

SGST

Balance

IGST

14,40,000

14,40,000

CGST

6,30,000

4,50,000

1,80,000

 

SGST

6,30,000

 

3,60,000

2,70,000

      

Tax Credit Reconciliation

    

Particulars

 Opening Balance

 Credit availed 

 Credit utilised

 Closing Balance

 

IGST

18,90,000.00

18,90,000.00

 

CGST

3,60,000.00

1,80,000.00

1,80,000.00

 

SGST

3,60,000.00

3,60,000.00

 
 

26,10,000.00

24,30,000.00

1,80,000.00

 

As we can analyse from both the examples, the SGST payable in the 1st Calculation is Rs. 90,000/- whereas the SGST payable in the next example is Rs. 2,70,000/- along with CGST Input of Rs. 1,80,000/-. Therefore, it can be analysed that the cash flow in respect of tax payment has increased in the 2nd calculation i.e. the set off rules applicable w.e.f. 1st February 2019, hence, increasing the burden on the taxpayers.

  1. Having Sale (Local and Central) + Purchase (Central)

Example – M/s. ABC Co., deals in trading of Stainless Steel items,  recorded the sale of Rs. 1,50,00,000/- in the month of January 2019, out of which the Rs. 80,00,000/- pertains to Inter State sale and Rs. 70,00,000/- pertains to Intra State sale. The GST rate is 18% on the items. The Central purchase for the month is Rs. 1,45,00,000/-. Let’s analyse the impact with both the method of calculations.

Upto 31st January 2019

    
      

Outward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Outward supplies

    70,00,000

Local Sale

        12,60,000

  

Outward supplies

    80,00,000

Central Sale

        14,40,000

  
 

1,50,00,000

 

27,00,000

  
      

Inward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Inward supplies

               –  

Local Purchase

                  –  

  

Inward supplies

  1,45,00,000

Central Purchase

        26,10,000

  
 

1,45,00,000

 

26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

 IGST

CGST

SGST

Balance

IGST

14,40,000

14,40,000

CGST

6,30,000

6,30,000

  

SGST

6,30,000

5,40,000

  

90,000

      

Tax Credit Reconciliation

    

Particulars

 Opening Balance

 Credit availed 

 Credit utilised

 Closing Balance

 

IGST

26,10,000.00

26,10,000.00

 

CGST

 

SGST

 
 

26,10,000.00

26,10,000.00

 
        

W.e.f. 1st February 2019

     
      

Outward

     

Particulars

 Amount

 Nature of Tax

 Tax

   

Outward supplies

70,00,000

Local Sale

12,60,000

   

Outward supplies

80,00,000

Central Sale

14,40,000

   
 

1,50,00,000

 

27,00,000

   
      

Inward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Inward supplies

Local Purchase

  

Inward supplies

1,45,00,000

Central Purchase

26,10,000

  
 

1,45,00,000

 

26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

 IGST

CGST

SGST

Balance

IGST

14,40,000

14,40,000

CGST

6,30,000

6,30,000

  

SGST

6,30,000

5,40,000

  

90,000

      

Tax Credit Reconciliation

    

Particulars

Opening Balance

Credit availed

Credit utilised

Closing Balance

 

IGST

26,10,000.00

26,10,000.00

 

CGST

 

SGST

 
 

26,10,000.00

26,10,000.00

 
                

In this scenario, the GST liability is same in both the calculation as we are utilising only the IGST Input for the offset of GST liability.

  1. Having Sale (Local and Central) + Purchase (Only Local)

Example – M/s. ABC Co., deals in trading of Stainless Steel items,  recorded the sale of Rs. 1,50,00,000/- in the month of January 2019, out of which the Rs. 80,00,000/- pertains to Inter State sale and Rs. 70,00,000/- pertains to Intra State sale. The GST rate is 18% on the items. The Local purchase for the month is Rs. 1,45,00,000/-. Let’s analyse the impact with both the method of calculations.

Upto 31st January 2019

    
      

Outward

     

Particulars

Amount

Nature of Tax

Tax

  

Outward supplies

70,00,000

Local Sale

12,60,000

  

Outward supplies

80,00,000

Central Sale

14,40,000

  
 

1,50,00,000

 

27,00,000

  
      

Inward

     

Particulars

Amount

Nature of Tax

Tax

  

Inward supplies

1,45,00,000

Local Purchase

26,10,000

  

Inward supplies

Central Purchase

  
 

1,45,00,000

 

26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

 IGST

CGST

SGST

Balance

IGST

14,40,000

 

6,75,000

6,75,000

90,000

CGST

6,30,000

 

6,30,000

 

SGST

6,30,000

  

6,30,000

      

Tax Credit Reconciliation

    

Particulars

Opening Balance

Credit availed

Credit utilised

Closing Balance

 

IGST

 

CGST

13,05,000.00

13,05,000.00

 

SGST

13,05,000.00

13,05,000.00

 
 

26,10,000.00

26,10,000.00

 
         

 

W.e.f. 1st February 2019

     
      

Outward

     

Particulars

 Amount

 Nature of Tax

 Tax

  

Outward supplies

70,00,000

Local Sale

12,60,000

  

Outward supplies

80,00,000

Central Sale

14,40,000

  
 

1,50,00,000

 

27,00,000

  
      

Inward

     

Particulars

Amount

Nature of Tax

Tax

  

Inward supplies

1,45,00,000

Local Purchase

26,10,000

  

Inward supplies

Central Purchase

  
 

1,45,00,000

 

26,10,000

  
      

Tax Payable Reconciliation (Excluding RCM)

   

Particulars

Payable

IGST

CGST

SGST

Balance

IGST

14,40,000

13,05,000

1,35,000

CGST

6,30,000

  

6,30,000

SGST

6,30,000

 

6,30,000

      

Tax Credit Reconciliation

    

Particulars

Opening Balance

Credit availed

Credit utilised

Closing Balance

 

IGST

 

CGST

13,05,000.00

13,05,000.00

 

SGST

13,05,000.00

7,65,000.00

5,40,000.00

 
 

26,10,000.00

20,70,000.00

5,40,000.00

 

 

In this example, as per the old provisions upto 31-01-2019, the taxpayers shall only have to pay Rs. 90,000/- whereas as per the new provisions, the taxpayer shall have to pay Rs. 6,30,000/- despite having Rs. 5,40,000/- in the SGST Input. Thus, causing an extreme cash flow shortage to the Taxable person.

In the conclusion, we would like to say that the new set off rules will surely increase the Government revenue in respect of GST collection but on the other hand, it will increase the cash flow on account of GST payment on part of Registered Taxable Person despite having ITC Input in their ledger, thus, causing cash crunch to the Registered Taxable Persons. 

2 thoughts on “New ITC Set off rules under GST w.e.f. 01-02-2019

  • March 4, 2019 at 7:21 pm
    Permalink

    Explained very well. Clearly brought the difference before and after new rules. Thanks

    Reply
    • March 5, 2019 at 4:19 pm
      Permalink

      Thanks for your appreciation.

      Reply

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