Illustrative explanation for cross utilization of credits under GST

sanjay aggarwal
on 17 November 2016

The Law allows utilization of credit of one component of tax against the other in different situations with the exception of utilization of CGST for SGST and vice versa, the Government has taken this bold step and so needs to do a lot of background accounting to keep the respective accounts of CGST/SGST/IGST straight and compute the respective balances of these accounts after making the respective transfers of funds from one account to the other depending on the computation of taxes paid in a given account and utilization of these taxes as credit for making tax payment in the other account.

The order of utilization of Input Tax Credits shall be

1.The ITC on account of IGST is allowed to be utilized towards payment of IGST, CGST and SGST.
2.The ITC on account of CGST is allowed to be allowed for payment of CGST and thereafter for payment of IGST.
3.The ITC on account of SGST is allowed to be allowed for payment of SGST and thereafter for payment of IGST.

Case Study: Understand by way of an example.

Transaction of sale which is interstate and vice versa of Rs 100000/- and Purchases of Rs 75000/-
Assuming the CGST & SGST rate 9% and IGST rate 18%.

The calculation is as follows

	Position 1 : Utilization of Input tax credit of CGST & SGST for payment of IGST
	Description	Rate	Amount	Remarks
A	Invoice details
	IGST Sale		100,000.00
	IGST rate	18%	18,000.00	Tax rate Assumed
			118,000.00
B	Purchase Details
	Total Purchases		75,000.00
	CGST	9%	6,750.00	Input Tax Credit Available
	SGST	9%	6,750.00	Input Tax Credit Available
			88,500.00
C	Calculation of Input Tax Credit
	IGST Payable		18,000.00
	CGST		6,750.00	CG will transfer the amount to IGST Account u/s 37 A (1) of MGL
	SGST		6,750.00	SG will transfer the amount to IGST Account u/s 37 A (2) of MGL
	Total Payable		4,500.00

	Position 2 : Utilization of Input tax credit of IGST for payment of CGST & SGST

	Description	Rate	Amount	Remarks
A	Invoice details
	Local sale		100,000.00
	CGST	9%	9,000.00	Tax rate Assumed
	SGST	9%	9,000.00	Tax rate Assumed
			118,000.00

B	Purchase Details
	Total Inter State Purchases		75,000.00
	IGST	18%	13,500.00	Tax rate Assumed

			88,500.00

C	Calculation of Input Tax Credit
	CGST Payable		9,000.00	CGST Component of GST Payable
	SGST Payable		9,000.00	SGST Component of GST Payable
	Total		18,000.00

	ITC of IGST
	Against CGST		9,000.00	CGST Payable is available for ITC to full extent
	Against SGST		4,500.00	SGST Payable is available for ITC to full extent subject to balance available
	Total		13,500.00

	Net GST Payable		4,500.00

	Position of Different Accounts with Government
A	IGST Account with the Government
	Opening Balance	-	Opening Balance Shall always be zero
	Add : Transfer
	From CGST A/c for Payment of IGST	6,750.00	Refer position 1 , column B above
	From SGST A/c for payment of IGST	6,750.00	Refer position 1 ,column B above
	Less: Transfer
	From IGST A/c for payment of CGST	9,000.00	Refer position 3 , column C above
	From IGST A/c for payment of SGST	4,500.00	Refer position 3 , column C above

	Closing Balance	Closing Balance shall always be zero

B	CGST Account with the Government
	Opening Balance	-		Assumed
	Add : Transfer
	From IGST A/c for payment of CGST	9,000.00		Refer position 3 , column C Above
	Add: CGST Component of inter state
	Supplies,/Import to unregistered person, ITC Not Applicable, Composition dealer etc	-
	Less Transfer
	From CGST Account for payment of IGST	6,750.00		Refer position 1, column B Above
	Closing Balance in account	2,250.00

C	SGST Account with the Government

	Opening Balance	-		Assumed
	Add : Transfer
	From IGST A/c for payment of CGST	4,500.00		Refer position 3, column C Above
	Add: SGST Component of inter state
	Supplies,/Import to unregistered person, ITC Not Applicable and Composition dealer etc	-
	Less Transfer
	From SGST Account for payment of IGST	6,750.00		Refer position 1, column B Above

	Closing Balance in account	(2,250.00)