What is Input Tax Credit set-off?
When you sell goods or services, you collect GST from your customers — this is your output tax. When you buy inputs (raw materials, services), you pay GST to suppliers — this is your input tax. Input Tax Credit (ITC) lets you subtract the input tax from the output tax; you pay only the difference in cash to the government.
Without ITC, GST would cascade — each stage in the supply chain would pay tax on tax. ITC is what makes GST non-cascading.
The §49A/49B utilization sequence
The CGST Amendment Act 2018 (effective February 2019) standardized the offset order via §49A:
| Step | Credit used | Applied against |
|---|---|---|
| 1 | IGST | IGST output first |
| 2 | IGST (remaining) | CGST output |
| 3 | IGST (remaining) | SGST output |
| 4 | CGST | CGST output |
| 5 | CGST (remaining) | IGST output (if any remains) |
| 6 | SGST | SGST output |
| 7 | SGST (remaining) | IGST output (if any remains) |
Key restriction: CGST credit cannot be used for SGST output, and SGST credit cannot be used for CGST output. This cross-utilization bar is absolute.
Why the order matters
If you have surplus IGST credit, it can wipe out CGST and SGST liabilities in sequence. But if you have surplus CGST credit, it cannot rescue a SGST shortfall — you must pay that SGST in cash and carry the CGST credit forward.
Example: Output CGST 0, Output SGST ₹5,000, Input CGST ₹3,000.
- CGST credit of ₹3,000 has no CGST output or IGST output to offset.
- SGST must be paid ₹5,000 cash.
- CGST ₹3,000 carries forward to next month.
Bridges
- GST Calculator — compute CGST/SGST/IGST amounts from invoice values first
- GST Late Fee Calculator — filed the return late? Compute the penalty