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GSTR-3B › ITC set-off
ITC set-off rules: which credit pays which tax
You can only use input tax credit in a fixed order. Using it the wrong way round is not possible on the portal, but planning it wrongly can mean paying cash while credit sits unused.
The order (section 49(5) and Rule 88A)
| Credit of | Can pay | Cannot pay |
|---|---|---|
| IGST | IGST first, then CGST and SGST/UTGST in any order and proportion | Cess |
| CGST | CGST, then IGST | SGST/UTGST |
| SGST/UTGST | SGST/UTGST, then IGST (only after CGST credit has been used for IGST) | CGST |
| Cess | Cess only | Any GST |
Rule 88A (Notification 16/2019-Central Tax, from 29 March 2019) says IGST credit must be used up fully before CGST or SGST/UTGST credit is used. Within that, you choose how to split IGST credit between CGST and SGST.
Two things you can never pay with credit
- Reverse charge tax (table 3.1(d)) must be paid in cash (section 49(4) read with section 2(82)). You then take the same amount back as ITC in table 4(A)(3).
- Interest and late fee are paid in cash.
Worked example
Tax payable: IGST ₹36,000, CGST ₹45,000, SGST ₹45,000. Credit: IGST ₹30,000, CGST ₹20,000, SGST ₹20,000.
- IGST credit ₹30,000 pays IGST ₹30,000. IGST still payable ₹6,000; IGST credit left ₹0.
- CGST credit ₹20,000 pays CGST. CGST still payable ₹25,000.
- SGST credit ₹20,000 pays SGST. SGST still payable ₹25,000.
- Cash: IGST ₹6,000 + CGST ₹25,000 + SGST ₹25,000 = ₹56,000.
Now say the credit is IGST ₹60,000 instead. IGST credit pays IGST ₹36,000 and the other ₹24,000 can go to CGST or SGST. If CGST credit ₹20,000 and SGST credit ₹20,000 cover only part of each, the best split gives ₹24,000 where it is still short, so no credit is left unused while cash is paid. The GSTR-3B working on the home page splits it this way for you.
Common mistakes
- Expecting extra CGST credit to pay SGST. It can't; leftover CGST credit is carried forward.
- Paying reverse charge tax "from ITC". It must be cash, every month.
- Forgetting the credit already in the electronic credit ledger from earlier months. Type it in "ITC balance brought forward".