1. Integrated Tax (IGST) under GST Act, 2017:

• All available IGST credit must be fully utilized
• This means you can use it to pay off your IGST liability on any type of transaction (intra-state or interstate).
• You cannot use CGST or SGST credit to pay off your IGST liability until you have exhausted your IGST credit.

2. Central Tax (CGST) and State/Union Territory Tax (SGST/UTGST) under GST Act, 2017:

• Once your IGST credit is fully utilized, you can then use your CGST credit and SGST/UTGST credit in any order.
• This means you can use them to pay off your CGST, SGST, or UTGST liability, depending on your needs.

Here are some additional points to remember:

• This order of utilization is mandated by Rule 88Aof the CGST Rules, 2017.
• The rule was amended in 2019to address concerns about fund settlement between the central and state governments.
• The GST portal was updated to reflect the new order of utilization in July 2019.
• If you have any doubts or need further clarification, it’s always best to consult with a tax professional.

EXAMPLE

The order of utilizing ITC under the GST Act 2017 is the same across all states in India, including Tamil Nadu. Here’s an explanation with an example:

Rule 88A of the CGST Rules 2017 prescribes the order of utilizing ITC:

1. Integrated Tax (IGST) Credit:
   • Utilize your entire IGST credit firsttowards payment of your IGST liability.
   • Any remaining IGST credit cannot be used for CGST or SGST until the IGST credit is fully exhausted.
2. Central Tax (CGST) and State Tax (SGST)/Union Territory Tax (UTGST) Credit:
   • After fully utilizing IGST credit, you can use CGST credit towards payment of CGST liability and SGST credit towards payment of SGST liability (or UTGST credit towards UTGST liability, if applicable).
   • You can utilize CGST and SGST (or UTGST) credit in any order, as long as you use them for their respective tax liabilities.

Example:

Let’s say your business in Tamil Nadu has the following GST liabilities and ITC available:

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Following the order of utilization:

1. First, utilize the entire IGST credit (₹2000) towards your IGST liability (₹500).This leaves you with ₹1500 of IGST credit remaining.
2. Since IGST credit is not fully exhausted, you cannot use CGST or SGST credit yet.
3. Therefore, you have ₹1500 of IGST credit remaining and ₹1000 of both CGST and SGST liability each.

Note: This is a simplified example. In real-life scenarios, you might have multiple transactions with different tax rates, and the order of utilization might become more complex.

Additional Points under GST Act, 2017:

• You can only utilize ITC for the same type of tax (CGST for CGST liability, SGST for SGST liability, etc.).
• You cannot carry forward unutilized ITC to the next financial year. However, you can claim a refund for the unutilized ITC subject to certain conditions.
• It’s recommended to consult a tax advisor for specific guidance on your business’s ITC utilization.

FAQ QUESTIONS

1. What is the current order of ITC utilization under GST Act, 2017?

As of February 2024, the order of ITC utilization is:

• First:Fully utilize IGST credit against any tax liability (Central Tax, State Tax, Union Territory Tax).
• Then:Utilize Central Tax credit against Central Tax liability.
• Finally:Utilize State Tax/Union Territory Tax credit against respective State/Union Territory Tax liability.

2. When did this order change under GST Act, 2017?

This order was implemented on July 1st, 2019. Before that, the order was different, requiring utilization of Central Tax credit before State Tax/Union Territory Tax credit.

3. Are there any restrictions on ITC utilization under GST Act, 2017?

Yes, there are a few restrictions:

• Minimum 1% cash payment:Taxpayers with monthly taxable supplies exceeding Rs. 50 lakh cannot use ITC to discharge more than 99% of their tax liability. They must pay at least 1% in cash.
• Specific exemptions:Certain taxpayers like those paying high income tax are exempted from the 1% cash payment rule.
• Time limit for availing ITC:You can generally claim ITC within 365 days from the invoice date, subject to certain conditions.

CASE LAWS

The order of utilization of input tax credit (ITC) under the GST Act, 2017 is primarily governed by Rule 88A of the CGST Rules, 2017, with clarifications provided by Circular No. 98/17/2019 and judicial pronouncements on specific aspects. Here’s a breakdown:

Rule 88A:

1. Integrated Tax (IGST):ITC on IGST must be first utilized towards payment of IGST itself. Any remaining IGST credit can then be used for Central Tax (CGST) or State Tax (SGST/UTGST), in any order.
2. CGST, SGST/UTGST:ITC on these taxes can only be utilized after exhausting all available IGST credit. They can be used towards payment of the respective tax (CGST for CGST credit, SGST/UTGST for their respective credit) or any other outstanding tax liability (IGST, CGST, SGST/UTGST).

Circular 98/17/2019:

This circular emphasizes the mandatory nature of the order prescribed in Rule 88A. You cannot utilize CGST/SGST/UTGST credit before exhausting IGST credit.

Case Laws:

While there are no specific case laws directly addressing the order of ITC utilization, some relevant judgments touch upon related aspects:

• High Court of Gujarat upheldthe time limit for claiming ITC under Section 16(4) of the CGST Act. This indirectly reinforces the importance of utilizing ITC within the prescribed timeframe.
• Other judgmentson ITC eligibility or reversal do not directly address the order of utilization but might have implications depending on the specific circumstances.

Important Notes under GST Act, 2017:

• The order of utilization applies to each tax period (month) separately. You cannot carry forward unused credit from one period to adjust against a different tax liability in another period.
• The GST portal automatically calculates and reflects the utilization of ITC based on the prescribed order. However, it’s crucial to understand the rule and its implications for accurate compliance.