Skip to content

Indirect Tax Laws and Practice · Input Tax Credit

Order of Utilisation of Input Tax Credit under GST

Updated 11 October 2026 · Fact-checked

Input tax credit sits in the electronic credit ledger and can pay only output tax. IGST credit is used first, against IGST, then CGST, then SGST or UTGST. For any payment, the available IGST credit must be fully used before CGST, SGST or UTGST credit is used. CGST and SGST credit never pay each other's tax.

Understand Manner of Utilisation of Input Tax Credit

Credit that you claim in your return is credited to your electronic credit ledger (Section 49(2)). It has separate balances for IGST, CGST, SGST/UTGST and cess. Cash you deposit goes to a different ledger, the electronic cash ledger.

The credit ledger can be used only to pay output tax under the CGST Act or the IGST Act (Section 49(4)). It cannot pay interest, penalty, late fee or any other amount. Those must be paid from the cash ledger (Section 49(3)).

Section 49(5) sets the basic order. IGST credit first pays IGST, and any balance may pay CGST and then SGST/UTGST, in that order. CGST credit first pays CGST, and the balance may pay IGST. SGST credit first pays SGST, and the balance may pay IGST. UTGST credit works like SGST credit.

Two hard bars apply. CGST credit cannot pay SGST or UTGST. SGST or UTGST credit cannot pay CGST (Section 49(5)(e) and (f)). This is why the answer to "can CGST credit be used to pay SGST?" is always no.

Section 49A adds a compulsory sequence. CGST, SGST or UTGST credit can be used for any payment only after the IGST credit has first been used fully for that payment. Section 49B lets the Government, on the Council's recommendation, prescribe the order and manner of utilisation, subject to the bars in Section 49(5)(e) and (f). Under the provisos to Section 49(5), SGST or UTGST credit can pay IGST only where CGST credit is not available for paying IGST.

Key rules to remember

IGST credit
IGST credit → IGST first → then CGST → then SGST/UTGST
Section 49(5)(a). For any payment, the IGST credit available must first be fully utilised before CGST, SGST or UTGST credit is used for that payment (Section 49A).
CGST credit
CGST credit → CGST first → balance to IGST
Section 49(5)(b). Never to SGST or UTGST.
SGST/UTGST credit
SGST (or UTGST) credit → SGST (or UTGST) first → balance to IGST only if CGST credit is not available for IGST
Section 49(5)(c) and (d) with provisos.
Prohibited cross-use
CGST credit ✗ SGST/UTGST liability; SGST/UTGST credit ✗ CGST liability
Section 49(5)(e) and (f).
Credit ledger scope
Credit ledger → output tax only; Cash ledger → tax, interest, penalty, fee, other amounts
Section 49(3) and (4).
Order of discharge of dues
Self-assessed dues of earlier periods → self-assessed dues of current period → other amounts, including demands under Sections 73, 74 or 74A
Section 49(8).

How to solve Manner of Utilisation of Input Tax Credit questions

Use this method for any set-off question. Work tax head by tax head, and keep the credit and cash figures separate.

  1. 1List the output liability under each head: IGST, CGST, SGST/UTGST.
  2. 2List the opening credit balance under each head, including the credit from the current period's purchases.
  3. 3Check whether the liability is tax or interest, penalty or fee. Only tax can be paid from credit. Other amounts go to cash.
  4. 4Pay IGST liability first with IGST credit. If IGST credit is left over, use it for CGST, then SGST/UTGST.
  5. 5If IGST liability remains, use CGST credit. Use SGST credit only if CGST credit is not available.
  6. 6Pay CGST liability with the remaining IGST credit first (Section 49A), then CGST credit. Never use SGST credit for it.
  7. 7Pay SGST liability with the remaining IGST credit first, then SGST credit. Never use CGST credit for it.
  8. 8Whatever liability is still unpaid goes to the cash ledger. State the cash payable and the closing credit balances.

Quickest way: Head-wise set-off grid

When to use it: Use this for numerical questions with three tax heads and limited time.

  1. Draw three columns for IGST, CGST and SGST with liability and credit.
  2. Apply the IGST credit first: to IGST liability, then CGST liability, then SGST liability.
  3. Apply CGST credit to remaining CGST liability, then to any IGST liability left.
  4. Apply SGST credit to remaining SGST liability, then to any IGST liability left only if CGST credit is exhausted.
  5. Cash payable equals the liability left in each head. Closing credit is the credit left in each head.

Common mistakes in Manner of Utilisation of Input Tax Credit

  • Using CGST credit to pay SGST liability, or the reverse.

    Both are levied on the same intra-State supply and are charged at equal rates, so they look interchangeable.

    Fix: Remember that Section 49(5)(e) and (f) bar cross-use of CGST and SGST/UTGST. Only IGST credit can pay both.

  • Using CGST credit for IGST liability before finishing IGST credit.

    Students follow the head-wise rule and forget Section 49A.

    Fix: For any payment, use the available IGST credit fully first. Only then use CGST, SGST or UTGST credit for that payment.

  • Paying interest or late fee from the credit ledger.

    Students treat all dues as set-off against credit.

    Fix: The credit ledger pays output tax only. Interest, penalty and fee are paid in cash.

  • Applying IGST credit to CGST before IGST liability is cleared.

    Students pick the head with the larger liability.

    Fix: IGST credit pays IGST first. Only the balance goes to CGST and then SGST.

  • Using SGST credit for IGST while CGST credit is still available.

    Students overlook the proviso to Section 49(5).

    Fix: For IGST liability, exhaust CGST credit before touching SGST/UTGST credit.

  • Ignoring cash payment for the shortfall and showing negative balances.

    Students stop after the credit set-off.

    Fix: Show the cash payable for each head after set-off.

Worked examples

Example 1

In a month, Shree Traders (Pune) has output liability of IGST ₹40,000, CGST ₹30,000 and SGST ₹30,000. Available credit: IGST ₹50,000, CGST ₹20,000, SGST ₹25,000. Show the set-off and the cash payable.

Show the solution
  1. IGST credit ₹50,000 pays IGST liability ₹40,000. IGST credit left: ₹10,000. IGST liability left: nil.
  2. Balance IGST credit ₹10,000 pays CGST liability. CGST liability left: ₹20,000. IGST credit left: nil.
  3. CGST credit ₹20,000 pays the remaining CGST liability ₹20,000. CGST liability left: nil. CGST credit left: nil.
  4. SGST credit ₹25,000 pays SGST liability ₹30,000. SGST liability left: ₹5,000. SGST credit left: nil.
  5. The SGST shortfall is paid in cash. CGST credit cannot be used for it.

Answer: Cash payable: SGST ₹5,000 only. Closing credit: nil in all heads.

Example 2

A registered person has IGST liability ₹60,000, CGST liability ₹10,000, SGST liability ₹10,000. Credit available: IGST ₹15,000, CGST ₹30,000, SGST ₹20,000. Show the set-off, closing credit and cash payable.

Show the solution
  1. IGST credit ₹15,000 is used first for IGST liability ₹60,000. IGST liability left: ₹45,000. IGST credit left: nil.
  2. CGST credit ₹30,000: first ₹10,000 pays CGST liability. CGST liability left: nil. The remaining ₹20,000 pays IGST liability. IGST liability left: ₹25,000. CGST credit left: nil.
  3. SGST credit ₹20,000: first ₹10,000 pays SGST liability. SGST liability left: nil. SGST credit left: ₹10,000.
  4. SGST credit can pay IGST only where CGST credit is not available. CGST credit is now nil, so the remaining SGST credit ₹10,000 pays IGST. IGST liability left: ₹15,000. SGST credit left: nil.
  5. The remaining IGST liability ₹15,000 is paid in cash.

Answer: Cash payable: IGST ₹15,000. Closing credit: nil in all heads.

Exam tips

  • Draw the grid of liability and credit for every numerical question, even when it looks simple.
  • Always write the legal reason beside each set-off, such as Section 49(5) or Section 49A. It earns marks.
  • For MCQs, check first whether the liability is tax or interest. Interest and penalty cannot be paid from the credit ledger.
  • Any option showing CGST credit paying SGST, or SGST credit paying CGST, is wrong.
  • State the cash payable and closing credit separately at the end.

Practice questions from Input Tax Credit

Manner of Utilisation of Input Tax Credit in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Manner of Utilisation of Input Tax Credit: frequently asked questions

Can CGST credit be used to pay SGST?

No. Section 49(5)(e) bars the use of central tax credit to pay State tax or Union territory tax. Section 49(5)(f) bars the reverse. Only IGST credit can pay all three taxes.

What is the order of utilisation of IGST credit?

IGST credit is used first for IGST. Any balance is used for CGST and then for SGST or UTGST, in that order. Section 49A requires IGST credit to be fully used before CGST, SGST or UTGST credit is used.

Can input tax credit be used to pay interest or penalty?

No. The credit ledger can be used only for output tax under the CGST or IGST Act. Interest, penalty and fees are paid from the electronic cash ledger.

What does Section 49B do?

It allows the Government, on the Council's recommendation, to prescribe the order and manner of utilisation of credit. It stays subject to the bars in Section 49(5)(e) and (f).