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Direct and Indirect Taxation · Input Tax Credit

Order of Utilisation of Input Tax Credit under GST

Updated 10 October 2026 · Fact-checked

Input tax credit is used to pay output tax in a fixed order. IGST credit is used first for IGST, then CGST, then SGST/UTGST. CGST credit pays CGST, then IGST. SGST/UTGST credit pays SGST/UTGST, then IGST. CGST credit can never pay SGST/UTGST, and the reverse.

Understand Utilisation of Input Tax Credit and Order of Set-off

When you buy inputs and pay GST, you earn input tax credit (ITC). It is credited to your electronic credit ledger. When you sell, you collect output tax. You then use the ledger balance to pay that output tax, and pay only the rest in cash.

The ledger keeps three separate heads: IGST, CGST and SGST/UTGST. Each head is a separate pool. The law does not let you move credit freely between pools. It allows only specific cross-utilisation. The rules are in Section 49 of the CGST Act and Rule 88A of the CGST Rules.

The core idea is this. IGST credit is the most flexible, so it is used up first. CGST and SGST are tied to their own taxes. They can each pay IGST, but never each other. This follows from the fact that CGST goes to the Centre and SGST goes to the State.

The law, not the question, fixes the order. IGST credit must first be exhausted against IGST output. Any IGST credit left is then used against CGST output, and then against SGST/UTGST output. CGST credit and SGST/UTGST credit can be used against IGST output only after the IGST credit has been fully used. Any balance then carries forward in the ledger.

The sums in the exam are always the same. Compute output tax by head, apply credit by head in the prescribed order, and find the cash payable and the closing credit. Assume here that all credit is eligible, that is, not blocked and conditions are met.

Key rules to remember

Utilisation of IGST credit
IGST credit → first IGST output, then CGST output, then SGST/UTGST output
IGST credit must be fully used against IGST liability before it is used for CGST or SGST/UTGST.
Utilisation of CGST credit
CGST credit → first CGST output, then IGST output
CGST credit cannot be used for SGST/UTGST output.
Utilisation of SGST/UTGST credit
SGST/UTGST credit → first SGST/UTGST output, then IGST output
SGST/UTGST credit cannot be used for CGST output.
Cash payable per head
Cash payable = Output tax of the head − Credit applied to that head
Work out each head separately. Never net the three heads together.
Closing credit
Closing credit = Opening credit + Credit earned − Credit utilised
Unused credit stays in the electronic credit ledger and carries forward.

How to solve Utilisation of Input Tax Credit and Order of Set-off questions

Use this method for any set-off question. Keep three columns: IGST, CGST, SGST/UTGST.

  1. 1List the output tax separately as IGST, CGST and SGST/UTGST.
  2. 2List the eligible ITC separately under the same three heads. Remove blocked or ineligible credit first.
  3. 3Apply IGST credit against IGST output first.
  4. 4Apply any leftover IGST credit against CGST output first, then against SGST/UTGST output, as prescribed by law.
  5. 5Apply CGST credit against CGST output, then any leftover against IGST output still unpaid.
  6. 6Apply SGST/UTGST credit against SGST/UTGST output, then any leftover against IGST output still unpaid.
  7. 7Cash payable for each head = output tax left after credit. Add the three heads for total cash.
  8. 8Show closing credit balance of each head.

Quickest way: Three-column table with remaining balances

When to use it: Use this in the MCQ section and for any numerical with ITC and output tax in all three heads.

  1. Draw three columns: IGST, CGST, SGST. Write output tax in one row and credit in the next.
  2. Use IGST credit on IGST output. If IGST credit is left, put it on CGST and then SGST.
  3. Use CGST credit on CGST. Use leftover on IGST output only.
  4. Use SGST credit on SGST. Use leftover on IGST output only.
  5. Check: no credit from CGST has gone to SGST and no credit from SGST has gone to CGST.

Common mistakes in Utilisation of Input Tax Credit and Order of Set-off

  • Using CGST credit to pay SGST/UTGST output tax (or the reverse).

    Students think CGST and SGST are two halves of one tax and treat them alike.

    Fix: Remember that CGST and SGST/UTGST credits are never cross-utilised. Each can only pay its own tax or IGST.

  • Using CGST or SGST credit against IGST output before using up IGST credit.

    Students apply credit head by head in the order of the question's data.

    Fix: Use IGST credit first against IGST output. Only then use CGST or SGST credit against IGST.

  • Netting total credit against total output tax.

    It is the easy shortcut, and it gives the right answer only by chance.

    Fix: Always compute by head. Total cash payable depends on which head holds the surplus credit.

  • Including blocked or ineligible credit in the opening balance.

    Students read all tax paid on purchases as credit.

    Fix: Remove blocked credits and credit not meeting conditions before the set-off.

  • Saying surplus credit is lost or refunded automatically.

    Students confuse utilisation with refund.

    Fix: Surplus stays in the electronic credit ledger and carries forward. Refund is allowed only in specific cases under the law.

Worked examples

Example 1

For a month, Shree Traders (Pune) has output tax: IGST ₹40,000, CGST ₹60,000, SGST ₹60,000. Eligible ITC: IGST ₹70,000, CGST ₹20,000, SGST ₹10,000. Compute cash payable and closing credit.

Show the solution
  1. IGST credit ₹70,000 against IGST output ₹40,000: IGST output becomes nil. IGST credit left ₹30,000.
  2. The law fixes the order for leftover IGST credit: first CGST, then SGST/UTGST. Apply the leftover ₹30,000 against CGST output ₹60,000: CGST output left ₹30,000. IGST credit is nil.
  3. Apply CGST credit ₹20,000 against CGST output ₹30,000: CGST output left ₹10,000.
  4. Apply SGST credit ₹10,000 against SGST output ₹60,000: SGST output left ₹50,000.
  5. Cash: CGST ₹10,000 and SGST ₹50,000. IGST nil.
  6. Total cash = ₹60,000. All credit is used (₹70,000 + ₹20,000 + ₹10,000 = ₹1,00,000 against total output of ₹1,60,000), so closing credit is nil.

Answer: Cash payable: CGST ₹10,000 + SGST ₹50,000 = ₹60,000. IGST cash nil. Closing credit nil.

Example 2

For a month, Kaveri Enterprises has output tax: IGST ₹90,000, CGST ₹30,000, SGST ₹30,000. Eligible ITC: IGST ₹20,000, CGST ₹50,000, SGST ₹45,000. Compute cash payable and closing credit.

Show the solution
  1. IGST credit ₹20,000 against IGST output ₹90,000: IGST output left ₹70,000. IGST credit nil.
  2. CGST credit ₹50,000: first against CGST output ₹30,000, which becomes nil. Leftover ₹20,000.
  3. Apply CGST leftover ₹20,000 against IGST output ₹70,000: IGST output left ₹50,000.
  4. SGST credit ₹45,000: first against SGST output ₹30,000, which becomes nil. Leftover ₹15,000.
  5. Apply SGST leftover ₹15,000 against IGST output ₹50,000: IGST output left ₹35,000.
  6. Cash payable = IGST ₹35,000. CGST and SGST are nil.
  7. All credit is used, so closing credit is nil.

Answer: Cash payable ₹35,000 (all IGST). Closing credit nil.

Exam tips

  • Always show the three heads in a table. Step marks come from the head-wise set-off.
  • Read the question for blocked credits or ineligible items before you start.
  • In MCQs, check whether the option sends CGST credit to SGST. That option is wrong.
  • Write one line of the rule next to each set-off, such as 'IGST credit first against IGST'.
  • State cash payable and closing credit separately at the end.

Practice questions from Input Tax Credit

Utilisation of Input Tax Credit and Order of Set-off in other exams

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

Utilisation of Input Tax Credit and Order of Set-off: frequently asked questions

What is the order of utilisation of ITC under GST?

IGST credit is used first against IGST, then CGST, then SGST/UTGST. CGST credit is used against CGST, then IGST. SGST/UTGST credit is used against SGST/UTGST, then IGST. CGST and SGST/UTGST credits are never used against each other.

Can CGST credit be used to pay SGST?

No. CGST credit can pay only CGST and IGST. SGST/UTGST credit can pay only SGST/UTGST and IGST.

How do I calculate net GST payable after ITC?

Find output tax by head, then apply credit by head in the prescribed order. What is left of each head's output tax is paid in cash. Add the heads for total cash payable.

What happens to unused ITC?

It remains in the electronic credit ledger and carries forward to later periods. It is not lost, though refund is available only in cases the law allows.