Explainer on Utilisation of ITC under GST

What are Set Off Rules?

GST has 4 components – Integrated Tax, Central Tax, State/UT Tax & Cess.

Taxes paid on interstate purchases & sales are Integrated Tax. Taxes paid on intrastate purchases & sales are Central & State/UT Tax.

Amount collected through central tax is for the central government & state tax is for the state government. The Integrated Tax is shared by the state & central government.

Set off rules determine how we adjust the output tax (for each component) with the input tax to determine the tax liability & the component towards which it needs to be paid.

Rules of utilization

Rule 1: IGST Liability & IGST ITC should become zero.

If IGST Liability is more than IGST ITC, then use CGST & SGST ITC also (in any proportion)

If IGST Liability is more than IGST ITC, then use CGST & SGST ITC also (in any proportion)

IGST Related:

• Rule: IGST Credit & Liability should become zero before proceeding to CGST/SGST
• IGST credit should first be utilized towards payment of IGST.
• Remaining IGST credit, if any, can be utilized towards Payment of CGST and SGST/UGST in any order and in any proportion.
• Entire Output IGST must be 
• Entire ITC of IGST should be utilized before utilizing the ITC of CGST and SGST/UTGST.
• ITC of CGST should be utilized for payment of IGST (if any) and CGST in that order. ITC of CGST cannot be utilized for payment of SGST/UGST 
• ITC of SGST/UTGST should be utilized for payment of IGST (if any) & SGST/UTGST in that order. 
• However ITC of SGST/UTGST should be utilized for payment of IGST, only after ITC of CGST has been utilized fully.

***but only ITC of CGST has been utilized fully.

Example:

1.

Head	Output tax liability	ITC
IGST	1500	1200
CGST	1200	1050
SGST/UTGST	1200	1050
Total	3900	3300

Solution:

ITC of	IGST liability	CGST liability	SGST liability	Balance
IGST	1200	200	100	0
ITC of IGST has been utilized fully
CGST	0	1000	0	50
SGST	0	0	1050	0

SGST liability of 50 has to be paid through cash ledger.