Under the GST regime, the taxpayer paying GST on inputs can claim the credit for tax paid on inputs and utilize the same towards the liability to pay GST on output. This is input tax credit utilization of GST, which enables to overcome challenges such as cascading tax prevalent under previous tax regime. Section 49 of the CGST Act, 2017 lays down the provisions regarding the utilization of input tax credit under GST. However, changes to such provisions were introduced by the government via a circular issued on April 23, 2019.

In this article, you will learn what is input tax credit utilization under GST and the new rules in respect of GST ITC utilization.

What is Input Tax Credit Utilization?

The process of claiming credit of GST paid on inward supply of goods and services by a registered person under GST and utilizing the same to set off GST liability on outward supply of goods and services is known as input tax credit utilization under GST.

This is unlike the previous indirect tax regime, where the credit of tax charged by the Central Government was not available to set off the payment for tax charged by the state government.

Old Rule for GST ITC Utilization

As mentioned above, Section 49 of the CGST Act, 2017 contains old rules with regard to ITC utilization under GST.

Initially, the ITC could be utilized in the following manner:

CGST Liability	SGST Liability	IGST Liability
First, ITC, on account of CGST,   is utilized	First, ITC, on account of SGST,   is utilized	First, ITC, on account of IGST,   is utilized
Then, ITC, on account of IGST, is utilized	Then, ITC, on account of IGST, is utilized	Then, ITC, on account of CGST, is utilized

It must be noted that the balance amount in the electronic cash ledger or the credit ledger after paying GST, interest fee, penalty, or any other amount as per the Act is refunded to the registered person.

New Rule for GST ITC Utilization

On April 23, 2019, the government issued Circular No. 98/17/2019 – GST, through which it made amendments in respect of the utilization of ITC under GST.

Accordingly, changes were made to section 49 of the CGST Act, and Section 49 A and 49B were inserted through Central Goods and Services Tax (Amendment) Act, 2017. Such changes in the provisions came into effect from February 1, 2019.

As per Circular No. 98/17/2019-GST issued on April 23rd, 2019, the government clarified the utilization of input tax credit of integrated tax in a particular order. Section 49(A) and 49(B) were inserted in CGST Act, 2017 via an amendment. As per section 49(A), ITC of Integrated Tax has to be utilized entirely before ITC of Central Tax and State Tax can be used to discharge any tax liability.

As per the old provision mentioned in section 49 of the CGST Act, 2017, the ITC of Integrated Tax has to be utilized first for the payment of IGST, then Central Tax, and then State Tax in this order necessarily. This led to a scenario where a taxpayer had to discharge his tax liability with regards to one kind of tax, say, for instance, state tax, through an electronic cash ledger. However, ITC, with regards to other type of tax, say central tax, remained unutilized in the electronic credit ledger.

To overcome such a challenge, rule 88 (A) was inserted in CGST rules, 2017. As per this rule, ITC of Integrated Tax can be utilized to pay output tax liability towards central and state tax in any order. However, this rule was subject to a condition that the entire ITC with regards to IGST must be completely exhausted before utilizing the ITC regarding Central tax or state tax.

The following table shows the order of utilization of ITC as per this circular:

ITC Utilization Example Option I Option II Reference Material However, such a GST input tax credit can be claimed only if the registered person meets the following requirements:

1. The registered taxpayer must have the tax invoice.

1. He must have already received goods and services.

1. The supplier has actually paid the requisite GST amount.

1. Registered taxpayer has filed the tax return.

1. The registered person (recipient) must pay the supplier the value of goods and services along with GST within 180 days from the date of issue of invoice. If the registered person (recipient) fails to do so, the amount of credit claimed would be added to the output tax liability of such a person together with interest. However, if the registered person (recipient) has made the payment, he is authorized to claim the credit for the same. In cases where a part payment is made by the registered person (recipient), credit can be claimed on a proportionate basis.