11 July 2024
In GST (Goods and Services Tax), the input tax credit (ITC) mechanism allows businesses to claim credit for the GST paid on purchases used for business purposes. The set-off rule for GST liability refers to the utilization of this input tax credit against the output GST liability. Here’s how it works:
### Input Tax Credit (ITC):
- **Definition:** Input tax credit (ITC) means the credit of GST paid on inputs (raw materials), input services, and capital goods used or intended to be used in the course or furtherance of business.
- **Conditions for Claiming ITC:** To claim ITC, certain conditions must be fulfilled: 1. The supplier must have furnished the GST return by declaring the outward supplies. 2. The recipient must have received the goods or services. 3. The recipient must have furnished the details of such inward supplies in their GST return. 4. The recipient must have paid the supplier for the supplies received within 180 days from the date of invoice. 5. Input tax credit is not available for certain goods and services, such as motor vehicles and food and beverages.
### Set-Off Rule:
- Once a taxpayer has accumulated ITC from their purchases, they can use this credit to set off (or offset) their GST liability on outward supplies (sales). Here’s how set-off works:
- **Set-Off Against Output Tax Liability:** The ITC accumulated under CGST (Central GST) can first be set off against the CGST liability and then against the IGST (Integrated GST) liability, if any. Similarly, ITC accumulated under SGST (State GST) can be set off against SGST liability and then against IGST liability.
- **Order of Set-Off:** The set-off is typically done in the following order: 1. CGST ITC against CGST liability 2. SGST ITC against SGST liability 3. IGST ITC against IGST liability
- **Adjustment:** After utilizing ITC for CGST and SGST liabilities, if any ITC remains, it can be utilized against IGST liability. If there is still excess ITC after adjusting against all liabilities, it can be carried forward to the next tax period or refunded in certain cases.
### Practical Example:
- Suppose a business has: - Purchased goods worth Rs. 1,00,000 attracting CGST @ 9% and SGST @ 9%, resulting in a total GST of Rs. 18,000. - Sold goods worth Rs. 1,20,000 attracting CGST @ 9% and SGST @ 9%, resulting in a total GST of Rs. 21,600.
- **Set-Off:** - The business can utilize its CGST ITC of Rs. 9,000 to pay off the CGST liability of Rs. 10,800. - Similarly, it can use SGST ITC of Rs. 9,000 to pay off the SGST liability of Rs. 10,800.
- **Balance:** After set-off, the business would have a net GST liability of Rs. 600 (Rs. 21,600 - Rs. 18,000).
### Conclusion:
The GST input set-off rule allows businesses to effectively manage their tax liabilities by using the input tax credit accumulated from purchases to offset their GST liability on sales. It ensures that tax cascading is minimized and businesses can pass on the benefit of reduced tax incidence to consumers. Proper documentation and compliance with GST rules are essential to claim and utilize input tax credit correctly.
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