Introduction

The amount of GST paid on purchases of goods and services for business purpose is allowed as a deduction from GST liability. It is known as Input Tax Credit (ITC).

There are three types of GST applicable

1. IGST
2. CGST
3. SGST/UTGST

A registered person may have liability amount in any types of GST and also have input tax credit in any types of GST.

The set off rules determines in which manner ITC of one type can be set off against GST liability of one type.

Set-off Rules

Section 49A of the CGST Act, 2017 and Rule 88A of CGST rules 2017 deals with the ITC set off rules.

The ITC set off rules are as follows:

1. First IGST ITC has to be set off against IGST liability.
2. Remaining IGST ITC can be set off against CGST liability and SGST liability in any order.
3. IGST ITC have to be set off first before setting off CGST ITC and SGST ITC.
4. Then CGST ITC has to be set off against CGST liability. Remaining CGST ITC can be set off against IGST liability.
5. SGST ITC has to be set off against SGST liability first. Remaining SGST ITC can be set off against IGST liability.

You can also use our calculator to calculate GST ITC Set off.

Best Practice to Set off

There are fixed rules to set off the ITC from GST payable. But the ITC of IGST remaining after set off from IGST payable can be set off from CGST or SGST in any order.

The GST portal set off the remaining IGST first from CGST payable and then from SGST payable. So, if you accept this default set off, your SGST ITC is less utilized than CGST ITC. It may happen that you have SGST ITC but not CGST ITC and therefore you have to pay CGST even if you have ITC but it is SGST ITC and it cannot be set off from CGST payable.

The best practice is to use the IGST remaining after set off from IGST payable, in equal proportion to set off CGST and SGST payable.

If you have not adopted this practice from starting, then you should set off in such manner than CGST and SGST ITC becomes equal and then adopt above practice.