Amendment in GST ITC Set off Rules and Impact Analysis

New GST Set off Rules with Examples

The government has amended the CGST Act 2017 vide CGST Amendment Act 2018, one of the most important changes is the new ITC set off rules in GST notification, a 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. The new GST set off rules were set up to reduce the balance under IGST credits to optimise distribution between the Centre and the state.

Impact of Amendment

Let us understand new GST set off rules with examples

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

But, as per the new GST ITC set off rules 2022, 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 carried forward along with this the SGST output liability of Rs. 50 will remain which shall be paid in cash.

New ITC Set off Rules in GST Notification

The new ITC set off rules were revised by GST Circular No. 98/17/2019 dated April 23, 2019. This circular includes the addition of two new sections, Sections 49A and 49B.

The following two sections were added to Section 49 of the CGST Act as a result of amendments:

Section 49A

Notwithstanding anything contained in section 49, the Input Tax Credit on account of Central tax, State tax, or Union territory tax shall be utilized 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 utilized fully towards such payment. 

Section 49B

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 utilization 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.”. 

ITC Rules Amendments

By introducing Rule 88A, the ITC Rules have been amended. It was introduced to notify the new provision through CT notification no. 16/2019, dated March 29, 2019.

Rule 88A: Order of utilization of input tax credit

Input tax credit on account of integrated tax shall first be utilized towards payment of integrated tax, and the amount remaining, if any, may be utilized towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order. Provided that the input tax credit on account of central tax, State tax, or Union territory tax shall be utilized 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 utilized fully.

GST Portal Updates

The validations based on amendments to rules have been updated on the GST portal effective from July 2019.

Impact of New GST Set Off Rules on Businesses

There can be 5 cases (GST set off rules 2022-23) depending upon the nature and transaction of the business

1. The latest IGST set off rules 2023, the purchase and sale both are interstate then there will be no impact on the business.
2. When the purchase is interstate & intrastate and the 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 the business purchases and sales the goods or/and services interstate and intrastate then the credit of CGST will accumulate (carry forward 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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