8/15/2017 How to Set Off Input Tax Credit Against Tax Liability in the GST Regime | GST (Goods

e | GST (Goods and services tax) - India | Tally for GST

How to Set Off Input Tax Credit

Against Tax Liability in the GST
Regime

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Last updated on July 17th, 2017 at 12:13 am

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We introduced Input Tax Credit (ITC) in a previous post.

Now let us understand how to set off your input credit against your
tax liability in the GST regime.

GST is a dual concept system. On every transac on (within a state),

there will be component of Central GST (CGST) and State GST (SGST).
Integrated GST (IGST) is for interstate transac ons. Therefore, it is
important for businesses to know how to set off the input credit
against each of these components in the order as prescribed by the
Law.

The order in which credit needs to be set off is explained in the table

below:

Input Tax Credit Set off against liability

CGST (Central GST) CGST and IGST (in that order)
SGST (State GST) SGST and IGST (in that order)
IGST (integrated GST) IGST, CGST, SGST (in that order)

Let us discuss with an example to understand how this works.

Example 1 – How can CGST and SGST

ITC be used?
Super Cars Ltd. is a car manufacturer located in Karnataka. The
details of transac ons effected by Super Cars Ltd. are furnished
below along with the tax component:

Des na on Transac on Input Credit

Party Name Product
State Type CGST
Ratna Steels Karnataka Purchase Steel 1,20,000

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(Inward
Supply)
Sale
Ravindra
Karnataka (Outward Car —
Automobiles
Supply)
Sale
Ravindra Spare
Karnataka (Outward —
Automobiles parts
Supply)

At the end of the month, Super Cars Ltd. adjusts available input credit
against their tax liability.

In the example, Super Cars Ltd. has a tax liability of 12,000. Here is
how it happens:

1. Super Cars Ltd. have Input tax credit of 1,20,000 each against
CGST and SGST.
2. As prescribed by Law, Super Cars Ltd. first u lized ITC of CGST
1,20,000 to set off CGST liability of 1,26,000 (36,000+90,000).
A er this adjustment, CGST liability is 6,000 (1,26,000 – 1,20,000).
3. Later, SGST input credit of 1,20,000 is set off against SGST liability
of 1,26,000 (36,000+90,000). A er se ng off SGST input
credit, 6,000 (1,26,000 – 1,20,000) is the SGST liability.
4. A er u lizing the available input credit of both CGST and SGST, the
tax liability of Super Cars Ltd. is 12,000 (CGST liability 6,000 +
SGST liability 6,000).
5. Any input credit balance of CGST, a er se ng off tax liability
towards CGST, cannot be used to set off against SGST. The balance
of ITC under CGST (post set off of CGST liability) will be carried
over to the next period.
6. Similarly, the SGST balance a er set off of SGST liability will be
carried over to the next period.

Example 2 – How can IGST ITC be

u lized?
Consider another set of transac ons for Super Cars Ltd.

Party Des na on Transac on Input Credit

Product
Name State Type CGST SGST
Shine
Purchase
Aluminium Aluminium
Tamil Nadu (Inward — —
Industries Bars
Supply)
Ltd.
Lakshmi
Purchase
Rubber
Tamil Nadu (Inward Tyres — —
Industries
Supply)
Ltd.
A-1 Spares Maharashtra Sale Spare — —
(Outward Parts
Supply)
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Sale
Johnson Spare
Karnataka (Outward — —
Auto Parts Parts
Supply)

At the end of the month, Super Cars Ltd. u lized IGST Input tax credit
to set off their tax liability.

As illustrated above,

1. Super Cars Ltd. have IGST Input tax credit of 40,000 and tax
liabili es of IGST 12,000, CGST 24,000 and SGST 24,000.
2. As prescribed by Law, IGST Input credit needs to be u lized first to
set off IGST tax liability. The remaining ITC can be used to set off
CGST and then against the SGST liability, in that order.
3. Super Cars Ltd. first u lized IGST ITC to set off IGST liability of
12,000.
4. Remaining IGST ITC credit 28,000 (40,000 – 12,000) is used to set
off CGST liability of 24,000.
5. Post this adjustment, the remaining IGST ITC of 4,000 is used to
set off SGST liability to the extent of 4,000.
6. Now, a er u liza on of Input credit available, the SGST liability of
Super Cars Ltd. is 20,000.

Example 3 – CGST ITC cannot be used

for SGST liability
Let us consider another scenario of Super Cars Ltd. to illustrate non-
u liza on of CGST ITC against SGST liability.

Super Cars Ltd. had a carry forward balance of CGST Input credit
15,000.

Input Credit balance Amount

CGST Input Credit 15,000

During the month, outward supply details of Super Cars Ltd. are
furnished below:

As illustrated,

1. Super Cars Ltd. u lized CGST Input Credit of previous period

15,000 to set off CGST liability of current period 11,000.

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2. A er this set off, Super Cars Ltd. has a balance CGST input credit of
4,000.
3. As prescribed by the Law, excess CGST Input Credit for the period
cannot be set off against SGST liability of current period. Similarly,
SGST Input Credit cannot set off against CGST liability.
4. Thus, the balance CGST credit was not u lized, and the SGST
liability for Super Cars Ltd. for the months is 11,000.

The Set-off mechanism for UTGST is similar to SGST. Click here to

know more.

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Related Posts:
1. ISD: How to Distribute Input Tax Credit
2. Condi ons for Availing GST Input Tax Credit
3. Scenarios where you cannot Avail Input Tax Credit
4. Moving to GST: Can I Avail Input Credit on Closing Stock?

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43 Comments
RAKESH PANDEY says:
Thursday March 16th, 2017 at 01:47 PM
CAN YOU PROVIDE DETAIL OF GST IN THIS MAIL ID

Tally Solu ons says:

Monday March 20th, 2017 at 07:48 PM
We have added you to our subscribers list.

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PREETAM THAKUR says:

Thursday March 16th, 2017 at 09:16 AM
THANKS FOR SHARING THIS TABULAR FORM OF GST ALLOCATION

Arun Kumar says:

Sunday February 19th, 2017 at 09:12 PM
Thanks to Tally India Team for simple, analy cal & easy to
understand illustrated examples in summarised tabular form, also
very helpful for accoun ng treatment of ICT & Liabili es for CGST,
SGST & IGST

Chaudhary Anil says:

Friday February 17th, 2017 at 06:23 PM
very nice understanding. Thanks

Sreenivasa reddy says:

Thursday February 9th, 2017 at 10:57 AM
Local Purchase — Intra State -Hyderabad
——————————————————————————-
Supplier Input Credit CGST Input Credit SGST
———————————————————————————
ABC 10000 10000

Sales — Inter State Sales to karnataka

——————————————————————————————
——————
Customer IGST
——————————————————————————————
—————-
XYZ 6000

Please explain above example how adjust input tax credit.

Tally Solu ons says:

Tuesday April 11th, 2017 at 07:03 PM
The en re CGST credit can be u lized to set-off the IGST
payable. Balance CGST credit will be Rs. 4,000 and SGST
credit will be Rs. 10,000. You can also choose to use the
SGST credit to set-off the IGST payable. In that case,
balance SGST credit will be Rs. 4,000 and CGST credit
will be Rs. 10,000.

Sreenivasa reddy says:

Thursday February 9th, 2017 at 10:50 AM
How to adjustment of Local purchase CGST and SGST Input tax
Credit to outward sale CGST.
Please explain how to do in prac cal scenario.

James Antony says:

Saturday January 28th, 2017 at 07:21 AM
Please give me a clarifica on. If I have inward Supply of Services
with CGST and SGST in Say Tamil Nadu and I have outward Intra
State Supply in Kerala with CGST and SGST, can I set off the same?
Example, I have CGST + SGST collected from Intra State supply
within Kerala. But I have a hotel accommoda on bill (incurred for
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the purpose of business) from Chennai in which CGST + SGST is

charged. Can I set off input tax credit of Chennai bills with output
tax of Kerala?

Tally Solu ons says:

Monday May 8th, 2017 at 06:33 PM
No, CGST + SGST of one state cannot be set-off against
CGST + SGST of another state.

Sudeep Mehrotra says:

Friday January 20th, 2017 at 07:02 AM
If a business operates in 5 different states, does it need to maintain
separate state wise ITC balances for SGST CGST IGST? That is, 15
different tax credits? Or, is it that the ITC can be freely used across
India?

Tally Solu ons says:

Monday May 8th, 2017 at 05:08 PM
No, CGST and SGST of one state cannot be adjusted with
CGST and SGST of another state. IGST credit can be
freely u lized.

premier says:
Saturday December 17th, 2016 at 12:03 PM
very easy to understand thank u

Sudhir says:
Saturday November 26th, 2016 at 12:35 PM
Nicely illustrated , Easy understand . Good effort from Tally Team.
Great Support

SHARAD SRIVASTAVA says:

Monday November 21st, 2016 at 08:34 PM
VERY EAST TO UNDERSTAND GST BY TALL TEAM………VERY GOOD

S. Chakraborty says:
Thursday November 17th, 2016 at 05:54 PM
If material sale West Bengal to Bihar . can you plz provide Invoice
format copy.

Tally Solu ons says:

Tuesday January 3rd, 2017 at 12:16 PM
We shall be publishing a blog on invoicing under GST
very soon.

Pandiyarajan says:
Wednesday March 1st, 2017 at 01:02 AM
So many confusions comes to end by your
simple tutorial. Very thankful to you

Cyriac Joseph says:

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Thursday November 17th, 2016 at 04:12 PM

Superb presenta on.

sanjay says:
Saturday November 5th, 2016 at 08:08 AM
Quite helpful in understanding the input credit set off process

Himanshu Dhingra says:

Friday November 4th, 2016 at 07:28 AM
APPRECIABLE PRESENTATION BY TALLY TEAM
CAN BE UNDERSTAND BY A LAYMAN EVEN.

KEEP ON GOING.

kesari srinivas says:

Friday November 4th, 2016 at 06:17 AM
What happens if the buyer dont pay on me and closes his
business , Do we need to shell down the TAX from our pocket.

Tally Solu ons says:

Wednesday November 9th, 2016 at 10:20 AM
We assume the ques on is “ What happens if the
supplier doesn’t pay on me and closes his business?’
If supplier doesn’t pay tax on outward supply made to
you, GSTN will communicate the mismatch. This needs
to ra fied by your supplier, if he fails to ra fy and
deposit the tax, the ITC claimed by you will be reversed
and added to your output tax liability. Please refer this
blog post for more
informa on h p://blogs.tallysolu ons.com/how-to-file-
gst-returns/

Swapnil says:
Friday November 4th, 2016 at 05:21 AM
Can you please explain the chronology of adjustment of Available
credits.

Tally Solu ons says:

Friday November 4th, 2016 at 12:52 PM
The order in which input tax credit needs to be u lised
is discussed in the ar cle. Please let us know if there is
any specific query you may have regarding this.

Tally Solu ons says:

Wednesday November 2nd, 2016 at 01:36 PM
The excess VAT credit as per the last returned filed by you is
allowed to be carry forwarded as SGST input credit. This can be
u lised to set off against liabili es in the prescribed order. Please
visit this blog post for more
details h p://blogs.tallysolu ons.com/?p=882

Srinivasarao Kothuri says:

Monday October 31st, 2016 at 02:29 PM

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Input Tax credit of SGST Rs.6000 Tax Liability of IGST Rs.14000

Input Tax credit of CGST Rs.6000

how to set off tax the transac on.

Tally Solu ons says:

Wednesday November 2nd, 2016 at 12:34 PM
First, CGST should be u lised to set off IGST liability
(IGST liability Rs.14,000 -CGST ITC Rs.6,000)
Then, SGST should be u lised to set off IGST liability
(IGST liability Rs.8,000 -SGST ITC Rs.6,000)
Remaining Rs.2000 will be the IGST payable.

Arun Jain says:

Wednesday October 26th, 2016 at 01:38 PM
What will be the tax liability of the closing stock of this financial
year if GST is implemented.

Tally Solu ons says:

Thursday December 22nd, 2016 at 06:51 PM
Please refer our blog on
this h p://blogs.tallysolu ons.com/input-credit-closing-
stock-gst-transi on/

KVG says:
Wednesday October 26th, 2016 at 07:03 AM
Excellent. Very well explained with Illustra ons & charts.
Reading Paragraphs a er paragraphs of the same concepts were
boring & confusing.
Tally team has presented it very clear for any lay businessman to
understand.

Tally Solu ons says:

Wednesday October 26th, 2016 at 08:36 AM
Glad you found it helpful:)

A.Mathew says:
Tuesday October 25th, 2016 at 06:05 PM
For Exporters under exis ng VAT and Central Excise system, the
exporter takes input credit for both VAT and C.Excise when
purchasing Raw material and consumables. If the local business
(Sales) is less there will be remaining large credit in both VAT &
C.Excise as both VAT nor C.Excis is applicable for exports. At
present the Exporter applies for Vat refund
Quarterly/halfyearly/yearly & also similarly for C.Excise rebate by
paying Duty while invoicing some export dispatches and later
claiming refund.
Under GST what will be the procedure ?.

Tally Solu ons says:

Thursday November 10th, 2016 at 06:25 PM
Under GST, refund will be allowed only in two cases
1.Export

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2.The credit has accumulated on account of rate of tax

on input being higher than the rate of tax on output.

In case, where the goods are exported out of India and

are subject to export duty, no refund can be claimed

Ajoy Kedia says:

Tuesday October 25th, 2016 at 05:07 PM
so in example 3 Rs. 4000 in CGST can be carried over to next month
or not ?

Tally Solu ons says:

Friday November 4th, 2016 at 01:40 PM
Yes, it can be carry forwarded to the next month.

ANANT TATKARE says:

Saturday November 12th, 2016 at 12:21 PM
WHICH TRANSACTIONS ARE COMES UNDER IGST
PLEASE EXPLAIN. ( Example)

T V ramarao says:
Wednesday October 12th, 2016 at 10:37 AM
Can we u lise the Cenvat Credit against CGST or SGST

Tally Solu ons says:

Wednesday October 12th, 2016 at 12:48 PM
The transi on provision of GST law allows carry forward
of eligible Cenvat credit. We will be publishing a detailed
blog post on this soon. Stay tuned:)

JYOTIBA PATIL says:

Wednesday October 5th, 2016 at 07:26 AM
GOOD …..

g.thiagarajan says:
Sunday October 2nd, 2016 at 01:12 AM
very businessmen should have a proper computer system with
networking service and most of all a great accoun ng so ware like
tally in place.other ways it is going to be a tough me to do
business.

Gadakh S S says:
Saturday October 1st, 2016 at 06:20 AM
Any credit should be allowed for all type liability.

dinesh tada says:

Tuesday September 27th, 2016 at 09:14 AM
awesomeeeeeeeeee tnx tally teammmmmmmmmmmm

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