NEW ITC SET-OFF RULES

In one of our Edge mailers, we took an example and explained how new ITC set off rules would work. Because GST changes are so many (way too many), every time we talk about a change it helps to take a step back and see what the original rule was. So here goes!

The original set off rules worked this way

Payment for First use Then use SGST tax SGST credit IGST credit CGST tax CGST credit IGST credit IGST tax IGST credit CGST credit and SGST credit

The government changed the ITC set off rules and now they work like this (effective 1st April 2019)

Payment for First use Then use IGST tax IGST credit CGST credit and SGST credit CGST tax IGST credit CGST credit SGST tax IGST credit SGST credit

However, 2 things are super important here -

Firstly, you should fully exhaust IGST credit, before using another type of credit - its mandatory to do so. Secondly, it doesn’t matter to the govt whether you use IGST credit to first pay CGST tax or SGST tax

[For those who want to look at the relevant sections -- section 49A has been newly added, also Rule 88A has been notified].

While this rule is effective 1st April, as on the date of writing this email, the change is not yet implemented on the GST portal. If credit is insufficient, as always you pay by cash.