Direct and Indirect Taxation · Computation of GST Liability

Computation of Output Tax Liability and Net GST Payable

Updated 10 October 2026 · Fact-checked

Net GST payable is output tax on your taxable supplies, minus the eligible input tax credit you can use. Work head by head: compute CGST, SGST and IGST on outward supplies, add reverse charge tax payable in cash, set off ITC in the prescribed order, and pay the balance in cash.

Understand Computation of Output Tax Liability and Net GST Payable

GST is charged on the value of taxable supplies. Tax collected on your sales is your output tax. Tax you paid on purchases used for business is input tax. If it is eligible, it becomes input tax credit (ITC) and reduces what you pay.

The tax head depends on the place of supply. An intra-State supply attracts CGST plus SGST/UTGST, usually in equal halves. An inter-State supply attracts IGST alone. So an intra-State sale at 18% means 9% CGST and 9% SGST. An inter-State sale at 18% means 18% IGST.

Your credit is held in an electronic credit ledger by head: IGST, CGST and SGST. You cannot use it freely. IGST credit can pay IGST, CGST and SGST. CGST credit can pay CGST and IGST, but never SGST. SGST credit can pay SGST and IGST, but never CGST. CGST or SGST credit is used on IGST only after its own head's liability is paid.

Net GST payable in cash is what remains after this set-off. Tax under reverse charge is different. You must pay it in cash through the electronic cash ledger, and you can only claim it as ITC afterwards, if eligible. Blocked credits and credit on exempt-use inputs are not available, so remove them first.

Section 38 makes available to the recipient, electronically, the details of outward supplies furnished by suppliers under section 37(1), along with an auto-generated statement of input tax credit. The statement shows inward supplies on which credit may be available. It also shows supplies on which credit cannot be availed, wholly or partly, in specified cases. One example is where the supplier has defaulted in payment of tax for the prescribed period. The form, manner and time are as prescribed.

Key rules to remember

Output tax: Output tax = Taxable value × GST rate; Intra-State: split into CGST and SGST (UTGST in a Union territory). Inter-State: all IGST.
Net GST payable: Net GST payable = Output tax (incl. reverse charge) − ITC utilised; Reverse charge tax cannot be paid from credit ledger. Pay it in cash.
Order for IGST liability: IGST credit first → then CGST credit and SGST credit left after their own heads are paid; IGST credit is used first on IGST liability. CGST or SGST credit goes to IGST only after CGST or SGST liability is paid.
Order for CGST liability: CGST: IGST credit balance after IGST is paid, then own CGST credit first, with any CGST credit left going to IGST; IGST credit may pay CGST. CGST credit pays CGST first, then IGST. SGST credit can never pay CGST.
Order for SGST liability: SGST: IGST credit balance after IGST is paid, then own SGST credit first, with any SGST credit left going to IGST; SGST credit pays SGST first, then IGST. CGST credit can never pay SGST.
Eligible ITC: Eligible ITC = Total input tax − blocked credit − credit not available (e.g. exempt use, apportioned); Compute credit head wise, not as one pool.

How to solve Computation of Output Tax Liability and Net GST Payable questions

Use the same sequence in every problem. Build a small table by tax head so the examiner sees each step.

1Decide intra-State or inter-State for each outward supply from the place of supply, then compute CGST, SGST or IGST on the taxable value.
2Separate reverse charge supplies. Compute tax on them and mark it as payable in cash only.
3Total the ITC by head (IGST, CGST, SGST) from inward supplies.
4Remove ineligible credit: blocked items, personal use, exempt supplies portion and any item the question says is not eligible.
5Apply the order. Set off IGST credit against IGST first, then any balance against CGST, then SGST.
6Set off CGST credit against CGST, then any balance against IGST. Set off SGST credit against SGST, then any balance against IGST.
7Pay any remaining liability in cash head wise and show the carry forward credit.
8State the net GST payable in cash and the closing credit balance.

Quickest way: Head-wise liability and credit grid

When to use it: Use it in numerical questions with several purchases and sales, when time is short.

Draw three columns: IGST, CGST, SGST. Put output tax in one row and eligible ITC in another.
First use IGST credit against IGST liability.
If IGST credit remains, use it against CGST, then SGST, unless the question asks otherwise.
Use CGST credit against CGST liability first. Only if CGST credit is left, use it against any IGST liability left.
Use SGST credit against SGST liability first. Only if SGST credit is left, use it against any IGST liability left.
Add the three cash balances. Check that no CGST credit was used against SGST or vice versa, and that no CGST or SGST credit went to IGST before its own head was paid.

Common mistakes in Computation of Output Tax Liability and Net GST Payable

Setting off CGST credit against SGST liability, or SGST credit against CGST
Both are half of the same rate, so students treat them as one pool.
Fix: Remember the bar: CGST and SGST credits cross-utilise only through IGST, never directly.
Using CGST or SGST credit on IGST before IGST credit is exhausted against IGST
Students pick the easiest matching head.
Fix: Always use IGST credit first on IGST liability, then on CGST or SGST.
Paying reverse charge tax from the credit ledger
It looks like another output liability.
Fix: Pay reverse charge tax in cash. Claim the credit later, if eligible, and use it for later liabilities.
Taking ITC on blocked credits or on exempt supplies
Students total the tax on every purchase invoice.
Fix: Scan each purchase for a blocked category or exempt use. Exclude it before the set-off.
Applying the wrong tax head to a supply
The place of supply is not checked and the buyer's State is ignored.
Fix: Write the supplier's State and place of supply first. Same State means CGST plus SGST, different State means IGST.
Showing only the final number
Students rush and compute in their head.
Fix: Show a head-wise table with each set-off step. Step marks depend on it.

Worked examples

Example 1

In a month, Aarav Traders, Pune, made intra-State taxable sales of ₹6,00,000 at 18% GST and inter-State taxable sales of ₹2,00,000 at 18% GST. Eligible input tax credit available: IGST ₹10,000, CGST ₹40,000, SGST ₹40,000. Compute net GST payable in cash.

Show the solution

Intra-State output tax = ₹6,00,000 × 18% = ₹1,08,000. CGST = ₹54,000 and SGST = ₹54,000.
Inter-State output tax: IGST = ₹2,00,000 × 18% = ₹36,000.
Set off IGST credit ₹10,000 against IGST liability ₹36,000. IGST left = ₹26,000. IGST credit left = nil.
Set off CGST credit ₹40,000 against CGST ₹54,000. CGST payable in cash = ₹14,000. CGST credit left = nil.
Set off SGST credit ₹40,000 against SGST ₹54,000. SGST payable in cash = ₹14,000. SGST credit left = nil.
No CGST or SGST credit is left to use against the remaining IGST. IGST payable in cash = ₹26,000.
Total cash = ₹26,000 + ₹14,000 + ₹14,000 = ₹54,000.

Answer: Net GST payable in cash is ₹54,000 (IGST ₹26,000, CGST ₹14,000 and SGST ₹14,000). Closing credit is nil.

Example 2

Meera Enterprises, Chennai, made intra-State taxable supplies of ₹5,00,000 at 12% GST. It also received legal services from an advocate, on which it must pay reverse charge GST of ₹9,000 (CGST ₹4,500 and SGST ₹4,500). Its eligible ITC is CGST ₹20,000 and SGST ₹25,000. Find the cash payable under forward charge and reverse charge.

Show the solution

Forward charge output tax = ₹5,00,000 × 12% = ₹60,000. CGST = ₹30,000 and SGST = ₹30,000.
Set off CGST credit ₹20,000 against CGST ₹30,000. CGST payable in cash = ₹10,000.
Set off SGST credit ₹25,000 against SGST ₹30,000. SGST payable in cash = ₹5,000.
Reverse charge tax cannot be paid from credit. Pay ₹4,500 CGST and ₹4,500 SGST in cash.
Total cash = ₹10,000 + ₹5,000 + ₹9,000 = ₹24,000.
The reverse charge tax paid becomes eligible credit if the services are used for taxable business. It is available for later periods.

Answer: Total cash payable is ₹24,000: forward charge ₹15,000 and reverse charge ₹9,000.

Exam tips

Draw the head-wise table first. It earns step marks even if one figure goes wrong.
Read each purchase for a blocked or exempt-use remark before including it in ITC.
In MCQs, look for tricks on the order of set-off. CGST credit paying SGST is always wrong.
State the closing credit balance. Examiners often award a mark for it.
Reverse charge tax is the usual cash-only trap, so mark it separately in your table.

Practice questions from Computation of GST Liability

Computation of Output Tax Liability and Net GST Payable in other exams

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

Computation of Output Tax Liability and Net GST Payable: frequently asked questions

How do I calculate net GST payable after input tax credit?

Compute output tax by head, including reverse charge. Deduct eligible ITC in the prescribed order. What remains is paid in cash. Reverse charge tax is always paid in cash.

What is the order of set-off of ITC under GST?

IGST credit pays IGST first, then CGST, then SGST. CGST credit pays CGST, then IGST. SGST credit pays SGST, then IGST. CGST credit cannot pay SGST and SGST credit cannot pay CGST.

Can I use ITC to pay reverse charge tax?

No. Reverse charge tax must be paid through the electronic cash ledger. You can take the credit afterwards, if eligible, and use it against later output liability.

Why does the auto-generated ITC statement matter?

Under section 38, the details of outward supplies furnished by your suppliers under section 37(1), and an auto-generated statement of input tax credit, are made available to you electronically. The statement shows credit that may be available and credit that cannot be availed, wholly or partly, in specified cases. One such case is a supplier who has defaulted in payment of tax for the prescribed period. Use it to see which credit is open to you.