Claiming CGST and SGST from IGST: A Comprehensive Guide

HMRC's constant revisions and clarifications in the GST (Goods and Services Tax) framework can sometimes lead to confusion among taxpayers. One common concern is whether one can claim credit for Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST) against Integrated Goods and Services Tax (IGST).

Understanding GST Credits and the IGST Rule

According to CUCS Circular No: 98/17/2019 dated 23 April 2019, the credit of integrated tax had to be used for payments in a specific order: first for IGST, then CGST, and finally SGST/UT tax. This order was often cited as a challenge, especially when electronic cash ledger balances for one tax type were not utilized.

The New Rule 88A: A Solution to the Order of Utilization

In response to this issue, new Rule 88A was introduced. This rule allows for the flexible utilization of input tax credits (ITC) from IGST toward payments of CGST, SGST, or Union Territory (UT) tax, without being restricted to a strict order.

Utilization Order Post-Rule 88A

Following the introduction of Rule 88A, the order of utilizing input tax credit is as follows:

First, the credit must be claimed against the same head (i.e., IGST) Second, the credit can be claimed against IGST in any order Third, the credit can be claimed against SGST or UT tax in any order Finally, the credit can be claimed for offsetting IGST

Therefore, the taxpayer first claims credit from IGST, then across all categories of taxes (CGST, SGST, UT tax) provided the credits are utilized in the order of the tax headers.

Practical Application and Examples

A practical example to illustrate this:

September IGST Return: A taxpayer has a due amount of INR 50,000 under IGST. October CGST Return: The taxpayer has a credit in the CGST account amounting to INR 40,000, which can be utilized against the December IGST return. October SGST Return: The taxpayer has a credit in the SGST account of INR 30,000, which can be utilized against the December IGST return. December IGST Return: The taxpayer has a total due amount of INR 70,000 under IGST. The taxpayer can utilize the ITC from October's CGST (INR 40,000) and SGST (INR 30,000) returns to offset the due amount, resulting in a credit of INR 70,000 - INR 70,000 INR 0.

Conclusion

The flexibility introduced by Rule 88A significantly simplifies the process of claiming credits from IGST to CGST and SGST, as long as the order of utilization is followed according to the tax headers. Taxpayers are encouraged to keep accurate records and utilize these credits strategically to optimize their financial obligations.

Additional Resources

CUCS Circular No: 98/17/2019 CUCS Circular No: 88-19/19 - State GST Credit GST Returns and Compliance Information

FAQs

Q: Can I claim SGST/UT tax before IGST?
A: No, Rule 88A stipulates that the order of utilization is CGST IGST SGST/UT tax. Therefore, SGST/UT tax can only be claimed after IGST. Q: What if I have a mix of CGST and SGST/UT credits?
A: You can use the credits in any order as long as you exhaust the IGST credits first. Q: Is there a time limit for claiming these credits?
A: The ITC must be claimed within the stipulated return period. However, the exact time limit varies based on the tax due. Always check with the local GST authority for the latest guidelines.