8 Tips for Setting off GST Liability against Available ITC

Occasions do arise when you need to file your GSTR 3B and Offset your Goods and Services Tax (GST) liability against the available Input Tax Credit (ITC). This function is available on GST portal but it’s a bit tricky one.

In this blog, I share with you some tips for smooth setting off of ITC against GST liability.

First things first. The GSTR 3B Return form is required to be filed by the merchant either monthly or quarterly, depending upon the option selected by the merchant. 

What is GSTR 3B Return?

GSTR-3B is a simplified monthly return form used for GST in India. It is designed to capture essential details of a taxpayer's business transactions for a specific tax period. Unlike other GST returns, GSTR-3B does not require a detailed invoice-level data submission; instead, it captures summarized figures of sales, purchases, and input tax credit.

It serves as a summary return, allowing taxpayers to report their tax liability and make payments on a monthly basis, while providing a provisional overview of their financial transactions until the comprehensive GSTR-1 and GSTR-2 returns are filed. 

This simplified return form helps streamline the GST compliance process and ensures a smoother tax collection system in India.

Setting off GST Liability with ITC 

Setting off GST liability against available ITC is a fundamental concept in GST compliance. Under this system, a registered taxpayer can offset or "set off" their GST liability against the ITC they have accumulated on purchases of goods and services. This means that when filing their GST returns, a taxpayer can deduct the total ITC from the GST liability, and pay only the net amount to the government. This mechanism helps businesses avoid double taxation and ensures that they are only paying tax on the value they add to goods or services. 

TIPS

1. The offset liability function is available only once for use in tax period. There is no          facility of setting off liabilities in part.

2. Offset liability is successful only if the offset criterion is met and complete                        liabilities are offered for set off in the payment section.

3. No offset can be done more than the liabilities payable as per declaration in table             3.1  and 3.1.1

4. Payment of the following can be done only through cash and not through credit:

    (i) Reverse charge related liabilities can be paid off only through balance                                 available in the cash ledger.

    (ii) Effective from Tax period July 2022, Supplies which are made through                             ecommerce operators on which the tax liabilities are required to be paid by                     ecommerce operators are reported in Table 3.1.1(i)

    (iii) Late fee and Interest can be paid off only through balance available in Cash                     Ledger.

5. ITC can be utilized in the following manner as per following prioritization for                 payment of tax liability other than reverse charge liability:

    (i) Credit available under IGST head shall be utilized for the payment of IGST                     liability, the remaining IGST can be credit can be utilized for liability under                     SGST or SGST/UTGST in any order, before using the CGST or                                         SGST/UTGST credit.

    (ii) Liabilities still left out in respect of any major head can be set off with the                         credit, if any available in other major head as per the credit utilization rules:

        • IGST Liability: Balance IGST liability can be set off with the CGST credit                         available after payment of CGST liability, if any. In case still IGST liability                     remains, the same can be set off with SGST credit, if available after payment                 of SGST liability.

        • CGST Liability: Balance CGST liability can be set off with IGST credit                             available after payment of IGST liability, if any.

        • SGST liability: Balance SGST liability can be set off against with IGST credit                 available after payment of IGST and CGST liability if any.

        • Liabilities still left out, if any can be paid off only through cash after making                    sufficient balance available in the cash ledger.

6. Interest to be paid on tax liabilities both for supplies attracting reverse charge as             well as other than reverse charge.

7. Interest and Late fee for due to delay in filing of previous month’s GSTR-3B is                 computed based on a set formula.

8. The ITC and cash utilization information entered will only be available for 2 days.             After expiry of 2 days, the suggested utilization shall be reverted to original system         suggested utilization. 

Conclusion

Effective ITC utilization is a crucial element of managing GST payments and can lead to reduced tax outflows for businesses, promoting ease of doing business in the GST regime.

Disclaimer: The views expressed in this article are personal views of the author, intended solely to provide general information and should not be taken as professional advice or substitute of professional advice. Before acting on the information given herein, please consult a qualified expert or professional for advice on specific issues.