Input Tax Credit (ITC) is one of the most significant features of the Goods and Services Tax (GST) system. It allows taxpayers to set off the tax already paid on purchases (inputs, input services, capital goods) against their output tax liability.

However, since GST consists of multiple components (IGST, CGST, SGST/UTGST), the law has laid down a specific sequence for utilisation of credits to maintain uniformity and prevent revenue loss to the Centre or the States.

Rule 88A, inserted via Notification No. 16/2019–CT dated 29.03.2019, simplified the earlier rigid utilisation rules by giving flexibility in using IGST credit.

Order of Utilisation – Step by Step

(A) Input Tax Credit on IGST

1. First used for IGST liability.
2. Balance, if any, can be utilised towards CGST and/or SGST/UTGSTin any order and in any proportion.

👉 Example: If you have ₹1,00,000 IGST credit and liabilities of ₹20,000 IGST, ₹50,000 CGST, ₹60,000 SGST –

• Use ₹20,000 for IGST liability.
• Remaining ₹80,000 can be used for CGST and SGST in any split (say ₹40,000 CGST + ₹40,000 SGST).

(B) Input Tax Credit on CGST

1. Can be utilised first for CGST liability.
2. If balance remains, then it can be used for IGST liability.
3. Cannot be used to pay SGST/UTGST liability.

👉 Example: If CGST credit = ₹30,000 and liabilities are CGST ₹20,000, IGST ₹15,000, SGST ₹15,000 –

• Use ₹20,000 for CGST liability.
• Remaining ₹10,000 can be used for IGST.
• Cannot use any CGST credit for SGST.

(C) Input Tax Credit on SGST/UTGST

1. Can be utilised first for SGST/UTGST liability.
2. If balance remains, then it can be used for IGST liability.
3. Cannot be used to pay CGST liability.

👉 Example: If SGST credit = ₹25,000 and liabilities are SGST ₹10,000, IGST ₹20,000, CGST ₹10,000 –

• Use ₹10,000 for SGST liability.
• Remaining ₹15,000 can be used for IGST.
• Cannot use SGST credit for CGST.

Simplified Flow Chart of Utilisation

Example

Suppose a taxpayer has the following liabilities and credits:

• Tax Liability: IGST ₹30,000, CGST ₹40,000, SGST ₹40,000
• Available ITC: IGST ₹70,000, CGST ₹20,000, SGST ₹10,000

Step 1 – Adjust IGST liability

• Use IGST credit ₹30,000 to pay IGST liability.
• IGST credit left = ₹40,000.

Step 2 – Adjust remaining liabilities

• IGST credit ₹40,000 can be split as per choice.
  • Say ₹20,000 against CGST and ₹20,000 against SGST.
• Remaining liabilities: CGST ₹20,000, SGST ₹20,000.

Step 3 – Use CGST and SGST credits

• Use CGST credit ₹20,000 for CGST liability.
• Use SGST credit ₹10,000 for SGST liability.

Final Liability Payable in Cash

• CGST = Nil (fully adjusted)
• SGST = ₹10,000 (remaining after ITC)