How is Input Tax Credit (ITC) utilized?

Input Tax Credit (hereinafter referred to as ITC) is credit available to a person registered under GST on payment of Input Tax. This amount is available in his Electronic Credit Ledger which he can adjust against his output tax liability.

Please note that in this article we are not concerned about Electronic Cash Ledger

In this article, we will understand the manner to utilize ITC available under various heads of GST.

Section 49(5): Adjustment of ITC

IGST/CGST/SGST/UTGST available in electronic credit ledger can be adjusted in the following sequence: -

The ITC available in the Electronic credit ledger MUST be utilized in the above-mentioned order. For example, IGST will first be utilized against IGST payable, then against CGST payable, and then if any balance remains then against SGST or UTGST as the case may be.

Few Important points

1. SGST / UTGST credit can be adjusted against only that state of UT's SGST / UTGST.
2. ITC i.e. Electronic Credit Ledger balance CANNOT be utilized for payment of interest or penalty. For that, we can use the Electronic Cash Ledger Balance. If there is no balance in the cash ledger, we have to first add the balance and then we can pay Interest or penalty.
3. As per section 49(5)(e), CGST cannot be utilized for payment of SGST/UTGST.
4. As per section 49(5)(e), SGST/UTGST cannot be utilized for payment of CGST.
5. As per section 49A, CGST/SGST/UTGST can be utilized for setting-off IGST/CGST/SGST/UTGST only after IGST credit is fully utilized.

I hope this article was helpful. Please write your feedback.

Thank You