New Rules for ITC Utilisation

As per the notification no.16/2019 dated 29.03.2019, a new rule 88A has been introduced into the CGST rules describing the order of utilization of Input Tax Credit as the old ITC Utilisation mechanism resulted in accumulation of ITC for one kind of tax in electronic credit ledger and the liability of other kinds of tax is discharged through electronic cash ledger.

Need for Rule.88A

The amended provision of section 49(5) of the GST Act, states that the integrated goods and services tax (IGST) credit available in the electronic credit shall first be utilized for the payment of integrated goods and services tax and the remaining unutilized credit of IGST available in the electronic credit ledger can be utilized for the payment of Central goods and services tax (CGST) and then for the payment of State Goods and Services Tax (SGST) in that order mandatorily, and

The new section 49A inserted vide Central Goods and Services Tax  (Amendment) Act, 2018, states that the Integrated Goods and Services tax credit has to be utilized fully before utilizing the Input Tax Credit (ITC) of  Central or State tax for the discharge of any liability.

The above provisions has led to a scenario where a registered taxpayer has to discharge his liability in respect of one type of tax (for example. central tax) through utilizing credit available in electronic credit ledger and another type of tax liability (for example. state tax) has to be discharged by payment through electronic cash ledger, while the Input tax credit on account of another type of tax (central tax) remains unutilized in electronic credit ledger.

Rule.88A of Central Goods and Services Tax Rules, 2017

As per the powers conferred in section-49B of the Goods and Services act, describing that the government subject to the provisions of clause(e) and clause(f) of sub-section 5 of section 49 on the recommendations of the council, prescribe the order and manner of utilization of the Input Tax Credit (ITC) towards the payment of taxes.

In exercise of the above power rule, 88A was inserted in the Central Goods and Services Tax Rules, 2017 vide notification No. 16/2019- Central Tax, dated 29th March 2019.

As per the Rule.88A in the Central Goods and Services Tax Rules, 2017, the input tax credit (ITC) of Integrated Goods and Services Tax (IGST) shall be allowed to utilize towards the payment of Central tax and State tax, or as the case may be, Union territory tax, in any order subject to the condition that the entire Input tax credit (ITC) in respect of Integrated Goods and Services tax is completely or fully exhausted/utilized first before the input tax credit on account of Central tax or State / Union territory tax can be utilized.

As per Rule.88A the order of Utilization shall be as follows

	OUTPUT TAX
Available  Input Tax Credit (ITC)	IGST	CGST	SGST/UTGST
IGST	(1)	(2) in any order and in any proportion
(3) Input Tax Credit of IGST is to be exhausted completely (mandatory)
CGST	(5)	(4)	Not Permitted
SGST/UTGST	(7)	Not Permitted	(6)

Illustration for ITC utilization under Rule.88A

Particulars	Output Tax	ITC
IGST	2000	2300
CGST	1000	900
SGST/UTGST	1000	900
Total	4000	4100

The procedure of ITC Utilization shall be illustrated below under two options

Option-1

	OUTPUT TAX			Balance
Available  Input Tax Credit (ITC)	IGST	CGST	SGST/UTGST	Balance of ITC
IGST	2000	200	100	NIL
Input Tax Credit of IGST has been exhausted completely.
CGST		800	Not Permitted	100
SGST/UTGST		Not Permitted	900	NIL
TOTAL	2000	1000	1000	100

Option-2

	OUTPUT TAX			Balance
Available  Input Tax Credit (ITC)	IGST	CGST	SGST/UTGST	Balance of ITC
IGST	2000	100	200	NIL
Input Tax Credit of IGST has been exhausted completely.
CGST		900	Not Permitted	NIL
SGST/UTGST		Not Permitted	800	100
TOTAL	2000	1000	1000	100