Utilization of Input Tax Credit

The Central Goods and Service Tax (Amendment) Act, 2018 has been made effective from 1

st February 2019 and the said amendment has resulted into various changes in the utilization of input tax credit and the same is taken up in the current article. Following is the list of amendments made effective from 1st February 2019 which affects Utilization Of Input Tax Credit –

Proviso inserted to section 49 (5) (c);
Proviso inserted to section 49 (5) (d);
New section 49A introduced.

All the above three amendments are being explained in-depth herein below –

Proviso has been Inserted to Section 49 (5) (C)

An input tax credit of SGST (state tax) shall be utilized towards payment of IGST (integrated tax) only and only when the balance of input tax credit of CGST (central tax) is not available.
In nut-shell, the balance of input tax credit of CGST should be utilized first and only then the balance of input tax credit of SGST can be used towards payment of IGST.

Proviso has been Inserted to Section 49 (5) (D)

An input tax credit of UTGST (union territory tax) shall be utilized towards payment of IGST (integrated tax) only and only when the balance of input tax credit of CGST (central tax) is not available.
In nut-shell, the balance of input tax credit of CGST should be utilized first and only then the balance of input tax credit of UTGST can be used towards payment of IGST.

New Section 49A has been Inserted

An input tax credit of IGST needs to be fully utilized first.
Only after fully Utilization Of Input Tax Credit of IGST, input tax credit of CGST, SGST / UTGST can be utilized towards payment of IGST, CGST, SGST or UTGST.

The effect of above all the amendments has been summarized in the below-mentioned table for better understanding

Type of Input Tax Credit	Sequence of Utilization Of Input Tax Credit	Remarks
First	Second	Third
Integrated tax (IGST)	IGST	CGST	SGST	First of all input tax credit of IGST needs to be utilized fully
Central Tax (CGST)	CGST	IGST	-	-
State Tax (SGST)	SGST	IGST	-	Credit of SGST can be utilized towards payment of IGST only when the balance of CGST is not available.
Union territory tax (UTGST)	UTGST	IGST	-	Credit of UTGST can be utilized towards payment of IGST only when the balance of CGST is not available.

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Frequently Asked Questions

Common questions about Input Tax Credit Utilization under GST Amendments.

The Central Goods and Service Tax (Amendment) Act, 2018, effective from 1st February 2019, has introduced changes in the utilization of input tax credit. It includes a proviso inserted to section 49(5)(c), a proviso inserted to section 49(5)(d), and a new section 49A.

According to the proviso inserted to section 49(5)(c), the ITC of SGST can be utilized towards payment of IGST (Integrated Goods and Services Tax) only when the balance of ITC of CGST (Central Goods and Services Tax) is not available. In other words, the ITC of CGST should be fully utilized first before using the ITC of SGST for paying IGST.

The proviso inserted to section 49(5)(d) states that the ITC of UTGST can be utilized towards payment of IGST only when the balance of ITC of CGST is not available. Similar to the SGST rule, the ITC of CGST should be fully utilized first before using the ITC of UTGST for paying IGST.

As per the new section 49A, the ITC of IGST needs to be fully utilized first. Only after fully utilizing the ITC of IGST, the ITC of CGST, SGST, or UTGST can be utilized towards payment of IGST, CGST, SGST, or UTGST.

The overall sequence of utilizing different types of ITC is as follows: First, ITC of IGST; Second, ITC of CGST; Third, ITC of SGST or UTGST (depending on availability). The ITC of SGST or UTGST can be utilized towards payment of IGST only when the balance of ITC of CGST is not available.

The amendments were introduced to streamline and regulate the utilization of ITC under the Goods and Services Tax (GST) regime. The changes aim to ensure that the ITC is used in a specific order, prioritizing the utilization of IGST credit first, followed by CGST credit, and then SGST or UTGST credit.

Yes, the article mentions that for GST guidance and registration, readers can click on a provided link.

For businesses operating in multiple states or union territories, the new amendment requires them to strategically manage their ITC utilization across different tax heads. They need to ensure that the ITC of CGST is fully utilized before utilizing the ITC of SGST or UTGST for paying IGST, which may require careful planning and monitoring of their tax credits.

No, the article does not explicitly mention a specific timeline for implementing these changes. However, it states that the Central Goods and Service Tax (Amendment) Act, 2018, which introduced these amendments, became effective from 1st February 2019.