A Case study on
GST ITC Set off according to new Rule

Dear All, in my previous article we have already gone through the concept of new GST setoff rule.
(Click here to read previous article :-  ITC ADJUSTMENT OLD Vs NEW)



Now in this article we will take a live case study which have been occurred during month of Aug 2019.  Along with case study I have created one excel utility which will help you to calculate GST liability amount automatically. You don’t have to put any effort to think on it. You just need to mention Liability and ITC amount and rest of the work will be done by excel only.
Download link for excel utility is available on bottom of article.

 Checkout Live Video on :- How to avoid GST Liability according to New ITC Method

Case Study :- An Importer who is having following balance under different head of GST is seeking help to identify the liability\refundable amount to be paid under particular head. You are required to solve the same according to old and new rule of sett off. (Amount is in nearest rounded figure)

Tax head
Output Tax Liability
Input Tax Credit
IGST
3,00,000
32,00,000
CGST
16,00,000
2,50,000
SGST
16,00,000
2,50,000

Solution :- Lets solve above case according to different method.
We can see overall there is no liability amount to pay as total liability amount is lesser then total Input Tax Credit Balance
Total Liability amount (CGST+SGST+IGST) = 35,00,000
Total Input Tax Credit amount (CGST+SGST+IGST) = 37,00,000
Hence there is refundable of 2,00,000 Rs.
Lets solve this equation according to old and new setoff rule
Method 1- Old Method (Old GST Setoff Rule)
Step 1- Inter adjustment of Liability with same head
Particulars
CGST
SGST
IGST
Output Tax
16,00,000
16,00,000
3,00,000
Less :- Input Credit
2,50,000
2,50,000
32,00,000
Net Payable
13,50,000
13,50,000
(29,00,000)


Step 2 – Utilization of IGST Input Tax balance to CGST & SGST liability respectively



Particular
Amount
IGST Setoff
Net Payable
Remark
CGST Liablity
13,50,000
13,50,000
0.00
(CGST Liability vs IGST ITC whichever is lower) (IGST Balance = 29,00,00 Less 13,50,00 = 15,50,00
SGST Libality
13,50,000
13,50,000
0.00
IGST balance (after CGST liability setoff Vs SGST liability whichever is lower)
   
After knocking off CGST & SGST Liability with IGST Credit there is still balance of 2,00,000 Rs.
Balance ITC of IGST = 29,00,000 – 13,50,000 CGST – 13,50,000 SGST = 2,00,000 INR
So according to old method of adjustment we do not have to pay any amount and there will be available credit to be used for next month liability.


Method 2 – According to New rule of GST ITC setoff.
According to New rule you need to knock of IGST ITC first before utilizing CGST & SGST ITC Balance.
Step 1 – Set off IGST ITC Balance with each liability
Particular
Liability Amount (a)
IGST Set off Balance (b)
Balance Liability


32,00,000

IGST
3,00,000
3,00,000 (Now balance 29,00,000)
0.00 (a minus b) whichever is lover
CGST
16,00,000
16,00,000 (Now balance 13,00,000)
0.00 (a minus b) whichever is lower
SGST
16,00,000
13,00,000 (Now balance = 0.00)
3,00,000 (a minus b) whichever is lower

Now after first step we can see ITC Balance of IGST is ZERO and liability yet to be paid under head of SGST as 3,00,000

Step 2 :- Utilization of CGST & SGST ITC
Particular
Amount
CGST ITC used
SGST ITC used
Net Liability
IGST Liability
0.00
NA
NA
0.00
CGST Liability
0.00
No liability hence no use
SGST can not be used
0.00
SGST Liability
3,00,000
CGST can not be used with SGST
2,50,000
50,000

Now we can see that there liability of SGST 50,000 which need to be paid at same time we have input tax credit balance of 2,50,000 which can not be used to knock of GST liability hence according to this new method dealer need to pay SGST amount even though having GST ITC balance.

Now if it is the case it is going to impact cash flow and working capital of business. Is there any solution where dealer can file GST without paying any amount as per new rule? Let’s check alternate solution according to new rule.
(This is little complicated, but we will see step by step) (You don’t have to learn this excel utility is there which will help you to calculate easy way)

 Click here to watch video


To utilize IGST ITC Balance you need to follow the below sequence
First knock off IGST liability with IGST ITC  = Check balance of IGST Liability which will be ZERO & IGST ITC Balance will be 32,00,000 Less 3,00,000 = 29,00,000
Second knock of CGST ITC with CGST Liability = Check balance of CGST Liability which will be 16,00,000 Less 2,50,000 =13,50,000
Third knock CGST balance liability with IGST Balance ITC = CGST Liability 13,50,000 Less IGST ITC Balance (whichever is lower) 13,50,000 = CGST Liability will be ZERO now and IGST ITC Balance will be 29,00,000 Less 13,50,000 = 15,50,000
Fourth knock of SGST Liability with IGST ITC Balance= SGST Liability 16,00,000 Less IGST ITC Balance is 15,50,000 = 50,000 SGST Liability. Now after this IGST ITC Balance is ZERO (According to new rule IGST ITC balance must be ZERO)
Fifth Now use SGST ITC Balance to knock off SGST Liability = SGST ITC Balance 2,50,000 Less SGST Liability 50,000 = No Liability but there will be SGST ITC Balance will be 2,00,000 Rs which can be used in next month.

Now you can see in alternate solution without violating GST rule return can be filed and No liability due on dealer.

Now you can download the excel utility on below link which will help you calculate GST liability automatically, you just have to put liability and ITC amount.


Click here to download excel utility free



Don’t forget to share your feedback and comment on gstintally786@gmail.com

Regards,
Parvez Ansari
GST AND TALLYWALA