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Illustrative explanation for cross utilization of credits under GST

sanjay aggarwal 
on 17 November 2016

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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)


The author can be reached at sanjayaggarwal2006@gmail.com


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