How to utilize GST credit against GST liability

How to utilize GST credit against GST liability

Credit Utilization rule under GST

There are three types of GST credit that a person can avail viz. the following:

  • IGST Credit- this is the credit you could avail when you make interstate purchases & IGST is charged on invoice by the seller.
  • CGST Credit- this is the credit you could avail when you make intrastate purchases & CGST is charged on invoice by the seller.
  • SGGT Credit- this is the credit you could avail when you make interstate purchases & SGST is charged on invoice by the seller.

Read & know more about GST input credit

Now, there are certain Credit utilization rule that you need to follow while you adjust the liability of a type of GST (i.e. IGST, CGST or SGST) with the available GST credits.

In simpler words, suppose you have a CGST liability of Rs.20000, SGST liability of Rs.20000, IGST liability of Rs.15000 & you have the following credit:

CGST credit – Rs.17500

SGST credit- Rs.17500

IGST credit- Rs.17500

Now, the credit utilization rules that we are talking about, let you determine, which of the above credits can be utilized against which liability & in which order.

So, there are two basics to the rule:

  • Which credit can be used against which liability
  • What should be the order to utilize the credit

Let’s lay down the rules now here & look how does it fit into the above example:

Which credit can be used against which liability?

This is simple.

  • CGST credit can be used to set off CGST & IGST liability.
  • SGST credit can be used to set off SGST & IGST liability.
  • And finally, IGST credit can be used to set off IGST, CGST & SGST liability.

So, there are 2 conclusions that we can draw with the above rules:

  1. CGST & SGST credit cannot be used to set-off SGST & CGST liability respectively.
  2. IGST credit can be used to set off any of the liability.

 What should be the order to utilize the credit?

So, now we know what can be adjusted against what, we come to the priority order i.e. what should be adjusted first

This is also simple.

  • CGST Credit should be used to adjust CGST liability first & then the IGST liability if there is a credit balance.
  • SGST Credit should be used to adjust SGST liability first & then the IGST liability if there is a credit balance.
  • IGST credit should be used to adjust first the IGST liability, then the CGST liability & lastly the SGST liability

Note: Any liability which is remaining after the credit adjustment should be paid.

So, now since we have laid down the rules, let’s come back to the example & see how the rule works with numbers

We had the following information

CGST liability of Rs.20000, SGST liability of Rs.20000, IGST liability of Rs.15000 & we have the following credit:

CGST credit – Rs.17500

SGST credit- Rs.17500

IGST credit- Rs.17500

CGST Credit of Rs.17500 would be used to set-off CGST liability of Rs.17500 & thus we still have Rs.2500 CGST liability.

SGST Credit of Rs.17500 would be used to set-off SGST liability of Rs.17500 & thus we still have Rs.2500 SGST liability.

IGST Credit of Rs.17500 would be used to set-off IGST liability of Rs.1500 & thus we have balance IGST credit of Rs.2500.

So, to conclude we have following final liability & credits

CGST liability of Rs.2500, SGST liability of Rs.2500 & IGST credit of Rs.2500

Following the rules, IGST credit of Rs.2500 would be used to adjust CGST liability & thus we have no CGST liability now & also we have no credit balance now, so the remaining SGST liability of Rs.2500 would be settled in cash.

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