Input Tax Credit (ITC) is a mechanism that allows businesses to reduce their tax liability by claiming credit for the taxes paid on their purchases of goods and services. The order of utilization of Input Tax Credit is as follows:
- ITC of IGST (Integrated Goods and Services Tax) – It shall first be utilised towards payment of IGST on outward supply. The amount remaining, if any, may be utilised towards the payment of CGST and SGST/UTGST in any order.
- ITC of CGST – It shall first be utilised towards payment of CGST on outward supply. The amount remaining, if any, may be utilised towards the payment of IGST. The ITC of CGST shall not be utilised towards the payment of SGST/UTGST.
- ITC of SGST/UTGST – It shall first be utilised towards payment of SGST/UTGST on outward supply. The amount remaining, if any, may be utilised towards the payment of IGST. The ITC of SGST/UTGST shall not be utilised towards the payment of CGST.
It is important to note that ITC can be utilized only if the tax invoice or debit note has been uploaded by the supplier in their GST return and the recipient has also filed their GST return. Also, ITC cannot be utilized for payment of tax on exempted supplies or for personal use.
