Goods and Services Tax

CHANGE IN INPUT TAX CREDIT ENTITLEMENT UNDER GST

Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 9-3-2019 – GST laws have been amended w.e.f. 01.02.2019 which inter alia includes amendment in manner of taking input tax credit amongst three formats of GST vis IGST, CGST and SGST. This has resulted in undue hardship to many taxpayers across the country. Goods and services tax involves two equal components on any transaction, CGST and SGST / UTGST. Inter-state supplies attract integrated goods and services tax (IGST), which is eventually apportioned between the Union and state Governments. Law Prior to 1st February, 2019 Section 49 of the CGST Act, 2017 contains provisions in relation to payment of tax, interest, penalty and other amounts. Sub-section 5 in relation to input tax credit states as under: The amount of input tax credit available in the electronic credit ledger of the registered person on account of- integrated tax shall first be utilised towards payment of integrated tax and the amount remaining, if any,

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against CGST and then against IGST, and SGST can be set off against SGST and then against IGST. The Government has amended CGST Act, 2017 vide CGST Amendment Act, 2018 with various changes w.e.f 01.02.2019 and one of the important amendment was made in Section 49 of CGST Act by introducing new section 49A to the CGST Act, 2017. Accordingly, the balance in credit ledger can be used only for making the payment of tax as CGST, SGST or IGST. Besides, the balance in such ledger will get reduced by amount of refund in case sought under the provisions of the Act. The credit ledger shows the balance of credit lying in CGST, SGST or IGST. The amount under various heads of credit could be used in the following order of preference: IGST can be used: For payment of tax as IGST For payment of tax as CGST For payment of tax as SGST CGST can be used: For payment of tax as CGST For payment of tax as IGST, in case balance is available SGST can be used: For payment of tax as SGST In case balance availab

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ation 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 Accordingly, Government has changed the order of setoff of input tax credit by introducing section 49A w.e.f. 01.02.2019 according to which, IGST Credit shall be set off fully before taking any setoff of CGST or SGST, which means earlier CGST/SGST ITC was used to set-off CGST /SGST liability, as the case may be, but now IGST Credit has to be first utilized fully for payment of IGST then for CGST and then for SGST liability as the case may be, even before utilization of ITC of CGST or SGST. The following matrix explains the manner of credit w.e.f. 01.02.2019 for any tax payments to be made: Payment for First set off from Then set off from SGST IGST SGST CGST IGST CGST IGST IGST CGST and SGST Change and impact The new amendment in the manner of taking audit will impact the working of taxpayers so much so that there will be less amo

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the tax of the SGST should be paid from the cash ledger even when there is credit in the CGST head. ₹ 50 is to paid in cash. Thus, IGST credit is to be used against IGST and also IGST first need to be set off against CGST and then only CGST credit can be set off against CGST. Also, the ITC of CGST can t be utilized against the SGST or vice-versa. One of the major positive impact for the states and revenue (and adverse for assesses) of the change in matrix for claiming input tax credit w.e.f. 1st February, 2019 will be that it will force the taxpayers to pay IGST out of pocket inspite of there being unutilized credit of CGST or SGST or UTGST lying in their electronic credit ledger. They cant use such input tax credit unless the IGST has been fully exhausted. Not only this, another major concern arising out of this amendment is that it restricts the seamless flow of ITC to the taxpayer across the board which will also impact the working capital requirements as well as increase the

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