Blog on Circular No. 98/17/2019-GST: Clarification on Utilization of Input Tax Credit (ITC) under GST

2025-03-03 09:23:03 02March

02March

Blog on Circular No. 98/17/2019-GST: Clarification on Utilization of Input Tax Credit (ITC) under GST

<p><a href="https://cms.plasament.com/storage/nisha/circular-98-17-2019-gst.pdf">circular-98-17-2019-gst</a><br><strong>Introduction</strong></p><p>The <strong>Central Board of Indirect Taxes and Customs (CBIC)</strong> issued <strong>Circular No. 98/17/2019-GST</strong> on <strong>April 23, 2019</strong>, to clarify the <strong>utilization of Input Tax Credit (ITC) under GST</strong>. This was necessary after the introduction of <strong>Sections 49A and 49B of the CGST Act</strong>, which impacted the order in which ITC must be utilized. The circular also explains <strong>Rule 88A</strong>, which provides flexibility in utilizing ITC while ensuring compliance with GST laws.</p><hr><h3><strong>Key Highlights of the Circular</strong></h3><h4><strong>1. Introduction of Sections 49A and 49B</strong></h4><ul><li><strong>Section 49A</strong> (effective from <strong>February 1, 2019</strong>) mandates that <strong>ITC from Integrated Tax (IGST) must be fully utilized before using ITC from Central (CGST) or State Tax (SGST/UTGST)</strong>.</li><li><strong>Section 49B</strong> allows the government to <strong>prescribe the order of ITC utilization</strong>.</li></ul><h4><strong>2. Challenges Faced by Taxpayers</strong></h4><ul><li>Due to <strong>Section 49A</strong>, businesses faced situations where they had <strong>excess ITC for one type of tax (SGST) but had to pay another tax (CGST) in cash</strong>.</li><li>This created <strong>cash flow issues</strong>, forcing businesses to <strong>pay tax in cash despite having ITC</strong>.</li></ul><h4><strong>3. Introduction of Rule 88A to Resolve ITC Utilization Issue</strong></h4><ul><li><strong>Rule 88A</strong> was introduced via <strong>Notification No. 16/2019-CT (March 29, 2019)</strong>.</li><li><strong>Flexibility Introduced:</strong> Taxpayers can now use <strong>ITC from IGST to pay CGST and SGST in any proportion</strong>, provided <strong>IGST credit is fully used first</strong>.</li></ul><h4><strong>4. New ITC Utilization Order</strong></h4><p>The revised order of ITC utilization is:</p><figure class="table"><table><thead><tr><th><strong>ITC Type</strong></th><th><strong>Can be Used for IGST</strong></th><th><strong>Can be Used for CGST</strong></th><th><strong>Can be Used for SGST/UTGST</strong></th></tr></thead><tbody><tr><td><strong>IGST ITC</strong></td><td>✅ <strong>Mandatory First</strong></td><td>✅ <strong>Allowed</strong></td><td>✅ <strong>Allowed</strong></td></tr><tr><td><strong>CGST ITC</strong></td><td>❌ Not Allowed</td><td>✅ <strong>Allowed</strong></td><td>❌ Not Allowed</td></tr><tr><td><strong>SGST/UTGST ITC</strong></td><td>❌ Not Allowed</td><td>❌ Not Allowed</td><td>✅ <strong>Allowed</strong></td></tr></tbody></table></figure><h4><strong>5. Example for Better Understanding</strong></h4><p>A taxpayer has the following <strong>ITC and tax liabilities</strong>:</p><figure class="table"><table><thead><tr><th><strong>Tax Type</strong></th><th><strong>Output Tax Liability</strong></th><th><strong>ITC Available</strong></th></tr></thead><tbody><tr><td><strong>IGST</strong></td><td>₹1000</td><td>₹1300</td></tr><tr><td><strong>CGST</strong></td><td>₹300</td><td>₹200</td></tr><tr><td><strong>SGST</strong></td><td>₹300</td><td>₹200</td></tr><tr><td><strong>Total</strong></td><td>₹1600</td><td>₹1700</td></tr></tbody></table></figure><p>Using <strong>Rule 88A</strong>, ITC can be <strong>flexibly utilized</strong>, ensuring <strong>better cash flow management</strong>.</p>