Analysis of New Rule 88A –“order of Utilization of input tax credit” along with numeric illustrative comparison pre and post amendments.

[Ramandeep Bhatia]

The new order of ITC utilization rule 88A is brought vide Notification no 16/2019 dated 29-03-2019. This may bring some relief to the business community, which has sensed an increase in there working capital requirement due to blockage of credit by the amendment made in section 49 vide first amendment act made effective from 1^st FEB 2019. Let us analyze the changes that are being brought by the new order of utilization vide rule 88A by the power conferred to the government vide section 49B.

• “Rule 88A." Order of utilization of input tax credit.-

Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order:

Liability	IGST	CGST	SGST/UGST	Remarks
ITC-IGST	1st	2nd / 3rd	2nd / 3rd	IGST liability will be settled off first compulsory and then free to use IGST Input in either of the payment CGST or SGST/UGST liability in any order.

Comments:

 As per amendment act the order of utilization after the setoff of IGST liability was compulsory CGST and then SGST/UGST.  Now the order has been relaxed wherein either of CGST or SGST/UGST liability can be set off.

• "Proviso to Rule 88A"

Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilized fully.”

Liability	IGST	CGST	SGST/UGST	Remarks
ITC -IGST	1st	2nd / 3rd	2nd / 3rd	ITC of IGST to be exhausted first than the only ITC of CGST or SGST/UGST can be utilized for respective payments.
ITC- CGST	2nd	1st	X
ITC- SGST	2nd	X	1st	The credit of SGST/UGST will be utilized for the payment IGST only when there is no other ITC available.

• Let’s understand the changes by the illustrative numeric example below:

Old set-off rules-prior to the amendment in section 49				New set-off rules (After First Amendment Act)				Latest set-off  (After insertion of Rule 88A)
Old set-off rules	IGST	CGST	SGST	New set-off rules (After First Amendment Act)	IGST	CGST	SGST	Latest set-off  (After insertion of Rule 88A)	IGST	CGST	SGST
Output liability	500	500	500	Output liability	500	500	500	Output liability	500	500	500
Input credit (including opening)	750	350	350	Input credit (including opening)	750	350	350	Input credit (including opening)	750	350	350
Priority of utilisation :				Priority of utilisation :				Priority of utilisation :
Intra head credit utilisation	-500	-350	-350	Inter head credit utilisation	-500	-250	0	Inter head credit utilisation	-500	-150	-100
Inter head credit utilisation		-150	-100	– Utilised from		IGST		– Utilised from		IGST
– Utilised from		IGST	IGST	Intra head credit utilisation		-250	-350	Intra head credit utilisation		-350	-350
Balance Input credit	0	0	0	Balance Input credit	0	100	0	Balance Input credit	0	0	0
Payable	0	0	50	Payable	0	0	150	Payable	0	0	50

Comments:

By looking at the above comparison under a different set of provision, we can clearly point out that the earlier position of setoff under earlier sec.49 (before amendment act) has been restored by the insertion of new rule 88A.