How GST set-off works under the current rules
Each month, the output tax in your GSTR-3B is paid first from the input tax credit in your electronic credit ledger, and the balance in cash. The law fixes which credit can pay which tax, and in what order. Getting it wrong means paying cash when credit was available, or carrying forward credit in one head while paying cash in another.
| Credit | First against | Then against | Never against |
|---|---|---|---|
| IGST | IGST | CGST and SGST, in any order and proportion | - |
| CGST | CGST | IGST (only after IGST credit is fully used) | SGST / UTGST |
| SGST / UTGST | SGST / UTGST | IGST (only after IGST credit is fully used) | CGST |
| Compensation cess | Cess | - | IGST, CGST, SGST |
The basis is Section 49(5) of the CGST Act, Section 49A (IGST credit must be fully used before CGST or SGST credit), Section 49B and Rule 88A of the CGST Rules, clarified by CBIC Circular 98/17/2019-GST. Because of Section 49A, IGST credit cannot be saved for later while CGST or SGST credit is used. The calculator therefore applies the IGST balance first to the head where your own credit falls short, so that cash is paid only where it truly has to be.
What must be paid in cash
- Reverse charge tax: ITC cannot be used for it. The credit of RCM tax is available after payment and can be used against forward-charge tax.
- Interest, late fee and penalty: credit can be used only for output tax.
- The Rule 86B 1%: where Rule 86B applies, at least 1% of output tax is paid in cash.
- Any shortfall: tax not covered by eligible credit after the set-off.
Rule 86B in brief
Rule 86B applies where the value of taxable supplies in a month, other than exempt and zero-rated supplies, exceeds Rs 50 lakh. ITC cannot then discharge more than 99% of the output tax liability. The main exceptions are where the person (or the proprietor, all partners, or the Karta, managing director or whole-time directors, as the case may be) paid income tax of more than Rs 1 lakh in each of the last two financial years; where a refund of more than Rs 1 lakh of unutilised ITC was received in the preceding year for zero-rated supplies without payment of tax or for an inverted duty structure; where cash already paid in the year exceeds 1% of output tax up to that month; and government departments, public sector undertakings, local authorities and statutory bodies. Tick the box only if none of the exceptions applies. In this calculator the 1% is worked on IGST, CGST and SGST output tax.
Interest on late payment
Interest under Section 50 is 18% a year. Where tax for a period is paid with a return filed after the due date, interest is charged only on the part paid through the electronic cash ledger. The calculator multiplies the cash tax by 18% and the number of days of delay over 365. Interest on tax that was never declared in a return, or on ITC wrongly availed and utilised, is worked differently and is not covered here.
Common set-off mistakes we see
- Paying CGST in cash while IGST credit was still available.
- Using ITC to pay reverse charge tax, which later becomes a demand with interest.
- Claiming credit that is not in GSTR-2B, which makes the set-off itself wrong.
- Ignoring Rule 86B once monthly sales cross Rs 50 lakh.
For monthly filing done for you, see GST return filing in Gurgaon. If a notice has come for wrong set-off or excess credit, see GST notice reply. For all GST work, see GST consultant in Gurgaon.
Frequently asked questions
What is the order of ITC set-off under GST?
IGST credit is used first against IGST liability, and any balance against CGST and SGST in any order and proportion. CGST credit is used against CGST and then IGST; SGST credit against SGST and then IGST. CGST and SGST credit can be used against IGST only after the IGST credit is fully used (Section 49A and Rule 88A of the CGST Rules).
Can CGST credit be used to pay SGST?
No. Section 49(5) does not allow CGST credit to be used against SGST or UTGST, or SGST credit against CGST. If one head has excess credit and the other has a shortfall, the shortfall is paid in cash and the excess is carried forward.
Can I keep IGST credit and use CGST or SGST credit first?
No. Under Section 49A, CGST and SGST credit can be used only after the IGST credit has been fully utilised. That is why the IGST balance must first go to CGST and SGST liability even if you also have CGST or SGST credit.
Can ITC be used to pay reverse charge tax?
No. Tax under reverse charge must be paid through the electronic cash ledger. The credit of that tax becomes available after payment, subject to the conditions of Section 16, and can be used against forward-charge liability.
Can ITC be used to pay interest or late fee?
No. Credit in the electronic credit ledger can be used only for output tax. Interest, late fee and penalty are paid in cash.
What is Rule 86B?
Rule 86B applies where the value of taxable supplies, other than exempt and zero-rated supplies, exceeds Rs 50 lakh in a month. Such a person cannot use ITC to pay more than 99% of the output tax liability, so at least 1% is paid in cash, unless an exception applies, such as income tax of more than Rs 1 lakh paid in each of the last two years, or cash payments already above 1% of output tax for the year.
How is interest calculated on late GST payment?
Interest under Section 50 is 18% a year on the tax paid late. Where tax for a period is paid with a return filed after the due date, interest is charged only on the part paid in cash, which is what this calculator estimates. Interest on tax not declared in any return, or found in proceedings, is calculated on the full amount.
Does the GST portal allow a different set-off from this calculator?
The portal suggests a set-off in GSTR-3B and lets you edit it within the legal order. This calculator follows the same rules and places the IGST balance where it saves the most cash. Always check the final figures on the portal before filing.