Rule 88A Input Tax Credit Set off Explained with Examples

Government has eased cash flow concerns of trade industry with relaxations in ITC setoff mechanism vide Notification number 16/2019 – Central Tax dated 29th March 2019 by inserting Rule 88A.

Legal Text

Section 49A as inserted by Section 21 of CGST Amendment Act 2018 is given below for your reference:

Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilized fully towards such payment

Rule 88A reads as inserted Notification Number 16/2019 – Central Tax dated 29th March 2019 is given below for your kind referance:

“Rule 88A. Order of utilization of input tax credit.- Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:

Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully”.

Rule 88A Input Tax Credit Set off Explained with Examples

Impact of Amendment

Earlier Government has changed the order of setoff by introducing section 49A w.e.f 1st February 2019 which said that IGST Credit should be set off fully before taking setting of CGST or SGST Credit.

This has been illustrated by below mentioned example.

GST Input Tax Credit Setting off Rules changed from 1st February 2019

This has brought situation of cash crunch in the industry as was explained in my old article but the same has been eased by the GOM with relaxations in ITC setoff mechanism vide Notification number 16/2019 – Central Tax dated 29th March 2019 by inserting Rule 88A as this rule says that “Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order”

Now lets Continue the above mentioned example to understand, what has changed.

Rule 88A Input Tax Credit Set off Explained with Examples

Below table shall illustrates the amendment in Order of Utilisation of ITC –

ITC Balance	Utilized for Set off against liability of				Conclusion
IGST	IGST	CGST	SGST	UTGST	After utilization towards payment of IGST only, same can be used for set off of liability for CGST or SGST or UTGST (in any manner)
CGST	IGST	CGST	NA	NA	Cannot be used against SGST/UTGST
SGST	IGST	NA	SGST	NA	Cannot be used against CGST/UTGST
UTGST	IGST	NA	NA	UTGST	Cannot be used against CGST/SGST

Note

1.) Taxpayers should note that Utilization of CGST/SGST/UTGST shall be allowed only when ITC for IGST has been first utilized in full.

2.) Taxpayers should note that Utilization of IGST ITC shall be allowed only when IGST liability has been fully paid first. After using it for IGST liability, it can be used for any other tax liability.

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