Utilization of Electronic Cash and Input Tax Credit (ITC) Ledger – FAQ

Utilization of Electronic Cash and Input Tax Credit (ITC) Ledger – FAQ. Rules and Principles for utilization of Electronic Cash Ledger and ITC credit

1. After submitting the GSTR-3B return, I was trying to make payment of the tax and was trying to offset my liability from the Electronic Cash Ledger; however I faced error. On what basis can I utilize the balance in Electronic Cash ledger?

The utilization of Cash from Electronic Cash Ledger is done on the basis of following principles:

1. RULE 1: The amount of Cash deposited for CGST/SGST/UTGST/IGST/Cess in the Electronic Cash Ledger can be used for payment of CGST/SGST/UTGST/IGST/Cess liabilities respectively. No inter head adjustment is allowed for major heads.

2. RULE 2: Cash deposited under the minor head i.e. Tax/Interest/Fee/Penalty/Others in the Electronic Cash Ledger can be utilized for payment of Tax/Interest/Fee/Penalty/Others liabilities respectively of the same major head. No minor head adjustment is allowed.

3. RULE 3: Amount under Cash Ledger will be used in the following priority order:

(a) self-assessed tax, and other dues related to returns of previous tax periods;

Previous month tax liability covers:

a. Tax liability reported but not paid
b. Interest/penalty/fee arising out of previous month return period declarations

(b) self-assessed tax, and other dues related to return of current tax period;

Current month tax liability includes:

a. Liability for invoices and amendments uploaded for previous months
b. ITC reversal due to mismatch of invoice (Reversal under Section 42 (5) & (6) for (M-2) Tax Period)
c. Tax amount increased in M Tax period as a consequence of reduction of liability by supplier in (M-2) tax period but without corresponding reduction in ITC by the receiver (Section 43(6))
d. Liability for invoices and other consolidated declarations uploaded for current month.

(c) Any other amount payable under the Act or the rules made thereunder including the demand determined under section 73 or 74.

4. RULE 4: The amount allowed to be entered for utilization of cash can’t be more than the amount of balance available under the respective major/minor head of tax in Cash Ledger.

2. After submitting the GSTR-3B return, I was trying to offset my liability from the Input Tax Credit, however I faced error. On what basis can I utilize the balance in Input Tax Credit?

The utilization of credit from Input Tax Credit is done on the basis of following principles:

RULE 1: The amount of input tax credit will be available for utilization in following priority:

(a) IGST input tax credit shall first be utilised towards payment of IGST liability and the amount remaining, if any, may be utilised towards the payment of CGST, SGST/UTGST liabilities in that order

(b) CGST input tax credit shall first be utilised towards payment of CGST liability and the amount remaining, if any, may be utilised towards the payment of IGST liability;

(c) SGST input tax credit  shall first be utilised towards payment of SGST  liability and the amount remaining, if any, may be utilised towards payment of IGST liability  if no CGST credit is available.

(d) UTGST input tax credit shall first be utilised towards payment of UTGST  liability and the amount remaining, if any, may be utilised towards payment of IGST liability if no CGST credit is available.

(e) CGST input tax credit shall not be utilised towards payment of SGST/UTGST liabilities and

(f) SGST/UTGST input taxed credit shall not be utilised towards payment of CGST liabilities.

RULE 2: ITC cannot be utilized for payment of reverse charge liabilities.

RULE 3: ITC can be utilized for payment of tax only.

RULE 4:  ITC can’t be utilized for payment of TDS/TCS/interest/penalty/fee/others.

RULE 5: ITC (Provisional ITC) availed for the current tax period can be utilized only for return related liability of the current tax period. Once, recipient files Valid GSTR-3/5, then any such unutilized/excess ITC would be available for payment of other liabilities as well.   

RULE 6: Balance ITC under credit Ledger (other than Provisional ITC for the current tax period) will be used in the following order:

a. Self-assessed tax related to returns of previous tax periods;
Note: Previous month tax liability covers tax liability reported but not paid

b. Self-assessed tax, related to return of current tax period;
Note: Current month tax liability covers:

(i) Liability for invoices uploaded for previous months
(ii) ITC reversal due to mismatch of invoice in M tax period (say June) for (M-2) (say April) Tax Period
(iii) Tax amount increased in M Tax period as a consequence of reduction of liability by supplier in (M-2) tax period but without corresponding reduction in ITC by the receiver (Section 43(6))
(iv) Liability for invoices uploaded for current month

c. Any other tax amount payable under the Act or the rules made thereunder including the demand determined under section 73 or 74.

RULE 7: Provisional ITC for current tax period or ITC for previous tax periods cannot be utilized for payment of liability for the current tax period, if liability arising of return for previous tax period is unpaid.

Previous month tax liability covers:

a. Tax liability reported but not paid
b. Interest/penalty/fee arising out of previous month return period

RULE 8: The amount allowed to be entered for utilization of credit can’t be more than the amount of balance available in the credit/Electronic Cash Ledger.

RULE 9: A unique identification number shall be generated at the Common Portal for each debit or credit to the electronic cash or credit or liability ledger and the same will be reflected in the corresponding ledgers of the taxpayer.

RULE 10: Credit availed on input CESS paid on inward supplies will be available for set-off against any output tax liability of Cess only.

There is no Inter head adjustment for Cess Input Tax Credit.

RULE 11: When the taxpayer utilizes the ITC against return related liability, System will adjust the provisional ITC first.