Order of input tax credit set-off and net GST payable
Apply the statutory set-off order to IGST, CGST and SGST credit and compute the cash actually payable.
Marks
6 marks
Exam time
10 min
Difficulty
Hard
The question
For a tax period, a registered person has output tax of IGST ₹80,000, CGST ₹50,000 and SGST ₹50,000. Input tax credit available is IGST ₹90,000, CGST ₹20,000 and SGST ₹20,000. Compute the net GST payable in cash after applying the prescribed order of set-off.
- Given
- Output tax — IGST ₹80,000, CGST ₹50,000, SGST ₹50,000ITC available — IGST ₹90,000, CGST ₹20,000, SGST ₹20,000
Formulas used
- IGST credit must be exhausted first, against IGST output and then against CGST and SGST output in any order
- CGST credit is used against IGST output, and only after the IGST credit is fully used
- CGST credit can never be set off against SGST output, and SGST credit can never be set off against CGST output
Step-by-step working
01Exhaust the IGST credit against IGST output first
1.5Output IGST ₹80,000 Less: ITC of IGST ₹80,000 ─────── IGST payable ₹ Nil IGST credit remaining ₹10,000The statute requires the IGST credit to be fully utilised before CGST or SGST credit is touched at all. Sequencing is the whole question.
02Apply the balance IGST credit to CGST output
1.5Output CGST ₹50,000 Less: Balance ITC of IGST ₹10,000 ─────── CGST remaining ₹40,000The remaining IGST credit may be applied to CGST or SGST in any order. Applying it to CGST here is a valid choice — state that you have exercised the option.
03Apply the CGST credit
1CGST remaining ₹40,000 Less: ITC of CGST ₹20,000 ─────── CGST payable in cash ₹20,00004Apply the SGST credit
1Output SGST ₹50,000 Less: ITC of SGST ₹20,000 ─────── SGST payable in cash ₹30,000No IGST credit is left to apply here, and CGST credit cannot cross over to SGST. The cross-utilisation bar is absolute.
05Total the cash payable
1IGST payable ₹ Nil CGST payable ₹20,000 SGST payable ₹30,000 ─────── Total payable in cash ₹50,000Present the answer as a three-line summary. A single total without the split loses presentation marks.
Net GST payable in cash
₹50,000 — CGST ₹20,000 + SGST ₹30,000
Where marks are lost
- Setting off CGST credit against SGST output, or the reverse. This is prohibited outright and is the most heavily penalised error in the chapter.
- Using CGST or SGST credit before the IGST credit is fully exhausted.
- Forgetting to state which head the balance IGST credit was applied to, when the law leaves it to your choice.
- Reporting a single combined figure instead of a head-wise split.
In the exam
Set-off questions are pure sequencing. Write the order of utilisation as a rule line at the top of your answer before you compute anything — it earns a mark on its own and it keeps the computation honest.
Practise next
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Talk to usWhy can CGST credit not be set off against SGST?
CGST accrues to the Centre and SGST to the State. Allowing cross-utilisation would move revenue between two different governments, so the law bars it absolutely. IGST is shared, which is why IGST credit can flow to either head.
Does the order of applying leftover IGST credit change the total cash payable?
Not the total in this question, but it changes the head-wise split. Where a taxpayer has an existing balance in one head, the choice can matter commercially — so state the option you exercised rather than leaving it implicit.
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