Key takeaways
- Exhaust IGST credit against IGST before using it for CGST or SGST/UTGST.
- After IGST liability, Rule 88A permits IGST credit against CGST and SGST in any order.
- CGST and SGST credits cannot be cross-used against each other.
- Section 49(4) restrictions, Rule 86B and blocked/ineligible credits can change usable balances.
- Simulate utilisation before filing because portal offsets and cash needs are tax-head specific.
What is the statutory utilisation sequence?
| Credit | First use | Next permitted use | Prohibited direct use |
|---|---|---|---|
| IGST | IGST | CGST and SGST/UTGST in any order | — |
| CGST | CGST | IGST | SGST/UTGST |
| SGST/UTGST | Same State/UT tax | IGST | CGST |
The “any order” flexibility begins only after IGST liability has been discharged from IGST credit.
What is a worked example?
Assume liability is IGST ₹40, CGST ₹70 and SGST ₹70. Credit is IGST ₹100, CGST ₹30 and SGST ₹20. First use ₹40 IGST credit against IGST. The remaining ₹60 IGST credit may be split between CGST and SGST. If ₹40 goes to CGST and ₹20 to SGST, then CGST credit of ₹30 clears the remaining CGST liability, while SGST credit of ₹20 reduces the remaining SGST liability, leaving ₹30 SGST payable in cash.
A different Rule 88A split can change which credit remains, but cannot create prohibited cross-utilisation.
Which liabilities cannot be paid from ITC?
Interest, late fee, penalty, reverse-charge tax and other non-output-tax amounts generally require the electronic cash ledger. Also test any statutory restriction on the credit ledger, blocked credit and provisional/reclaim balances.
How can Rule 86B affect the result?
Rule 86B can restrict use of the electronic credit ledger beyond a prescribed percentage of output-tax liability for covered high-turnover taxpayers, subject to exceptions. A mathematically available credit balance may therefore not be fully usable in the return. Document exception eligibility rather than assuming it.
What utilisation mistakes recur?
Common errors are leaving IGST credit unused while using CGST credit, attempting CGST/SGST cross-use, offsetting RCM from ITC, focusing on total credit instead of tax heads, and failing to consider restrictions before challan preparation. Amendments or portal behaviour should be checked against the Act and rules, not treated as the source of the legal order.
What month-end control is useful?
Prepare a liability-by-head and credit-by-head matrix before filing. Simulate at least two permitted IGST splits, record cash outcome, test restricted liabilities and Rule 86B, then compare the final portal offset to the approved simulation. Retain the electronic ledgers and filed return.
Primary sources
Frequently asked questions
Must IGST credit be exhausted first?
Yes. Section 49A requires eligible IGST credit to be fully utilised before CGST or SGST/UTGST credit is used, subject to the current statutory framework.
After paying IGST, can IGST credit be used against SGST before CGST?
Rule 88A permits the remaining IGST credit to be used against CGST and SGST/UTGST in any order and proportion.
Can CGST credit pay SGST liability?
No. Direct CGST-to-SGST utilisation is prohibited. CGST credit goes to CGST and then IGST.
Can SGST credit pay CGST liability?
No. SGST/UTGST credit goes first to the same tax and then IGST, not to CGST.
Can ITC pay interest or late fee?
The electronic credit ledger is used for output tax as permitted, not for interest, penalty, fee or reverse-charge liability. Those generally require cash.
Why can the portal require cash despite an ITC balance?
The balance may be in the wrong tax head, restricted, ineligible, subject to Rule 86B or unavailable for non-output-tax liabilities. Reconcile ledger character, not only the total.
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