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.
Post Author
Babu Prasanth
