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Goods and Services Tax (GST) and Corporate Tax Planning · Input Tax Credit and Computation of GST Liability

Computation of GST Liability and Payment of Tax

Updated 11 October 2026 · Fact-checked

Net GST payable is output tax on the value of supply, minus input tax credit used in the permitted order, with the balance paid through the electronic cash ledger. Compute output tax head-wise (IGST, CGST, SGST), set off credit as section 49 allows, then pay the cash balance, with interest if late.

Understand Computation of GST Liability and Payment of Tax

GST is a tax on the value of supply. On every taxable sale you charge output tax. On your purchases you paid input tax. The law lets you claim the input tax as credit, so you pay only the difference to the Government.

Your tax position is tracked in three records. The electronic cash ledger holds money you deposit. The electronic credit ledger holds input tax credit (ITC) that you have self-assessed in your return. The electronic liability register records what you owe. Credit is used only to pay output tax. Cash can pay tax, interest, penalty, fee or any other amount.

The heads matter. IGST, CGST and SGST/UTGST are separate. Credit of one head can be used for another head only as section 49(5) allows. IGST credit is used first for IGST, then CGST, then SGST. CGST credit is used for CGST, then IGST. SGST credit is used for SGST, then IGST, but only if CGST credit is not available for IGST. CGST credit can never pay SGST, and SGST credit can never pay CGST.

Once credit is used, the balance is paid in cash. If you pay late, section 50 charges interest from the day after the due date, at a rate not exceeding 18% as notified. Wrongly availed and utilised ITC attracts interest at a rate not exceeding 24% as notified. Dues are discharged in the order in section 49(8): older return dues first, then current return dues, then other amounts such as demands.

Key rules to remember

Output tax
Output tax = Value of taxable supply × Rate of tax
Value excludes GST itself. Work head-wise: intra-State supply gives CGST + SGST, inter-State supply gives IGST.
Net tax payable in cash
Cash payable = Output tax − ITC utilised (head-wise, in permitted order)
Credit only pays output tax. It cannot pay interest, penalty or fee.
Utilisation order (section 49(5))
IGST credit → IGST, then CGST, then SGST | CGST credit → CGST, then IGST | SGST credit → SGST, then IGST
SGST credit can pay IGST only where CGST credit is not available for IGST. CGST credit cannot pay SGST. SGST credit cannot pay CGST.
Interest on delayed tax (section 50)
Interest = Tax paid late × Rate × Days of delay ÷ 365
Rate not exceeding 18% as notified. Counted from the day after the due date. Where the return is filed late, interest is on the portion paid through the cash ledger.
Interest on ITC wrongly availed and utilised
Interest = ITC wrongly availed and utilised × Rate × Days ÷ 365
Rate not exceeding 24% as notified. Use the rate given in the question.
TDS under section 51
TDS = 1% × Value of supply (excluding taxes), if contract value exceeds ₹2,50,000
Deductor pays it within ten days after the end of the month of deduction. No deduction if supplier's location and place of supply are in a State different from the recipient's State of registration.
Order of discharge (section 49(8))
(a) Self-assessed tax and dues of earlier periods → (b) current period → (c) other amounts, including demands
Applies to tax and other dues together.

How to solve Computation of GST Liability and Payment of Tax questions

Use this method for any question that asks for net GST payable or the ledger position.

  1. 1Separate supplies into intra-State (CGST + SGST) and inter-State (IGST). Exclude exempt and non-taxable supplies from output tax.
  2. 2Find the value of supply for each lot, check inclusions and discounts, and apply the correct rate to get output tax head-wise.
  3. 3List ITC available head-wise. Remove blocked credits and ineligible items, and apportion credit if the question mentions exempt supplies. Add opening balances.
  4. 4Set off IGST credit first against IGST, then CGST, then SGST. Show the balance after each step.
  5. 5Use CGST credit against remaining CGST, then any remaining IGST. Use SGST credit against remaining SGST, then remaining IGST only if CGST credit is exhausted.
  6. 6Whatever liability remains in each head is paid from the electronic cash ledger. Add any interest or other dues payable in cash.
  7. 7If payment is late, compute interest on the cash-paid portion from the day after the due date. State the order of discharge if several dues are pending.
  8. 8Write a closing table: head, output tax, credit used, cash payable, carried-forward credit.

Quickest way: Head-wise grid with the IGST-first rule

When to use it: Use when the question gives several outputs and credits across IGST, CGST and SGST and time is short.

  1. Draw three columns (IGST, CGST, SGST) with rows: output, credit, balance.
  2. Clear IGST output with IGST credit first.
  3. If IGST output remains, use CGST credit, then SGST credit. If CGST credit is available, use it before SGST.
  4. Use the leftover CGST credit for CGST output and SGST credit for SGST output.
  5. Sum the cash balances. Cross-check: total output minus total credit used equals total cash paid.

Common mistakes in Computation of GST Liability and Payment of Tax

  • Setting off CGST credit against SGST liability, or the reverse.

    Students treat CGST and SGST as one 'GST' pool because the rates are equal.

    Fix: Keep separate columns. Section 49(5) bars CGST credit for SGST and SGST credit for CGST.

  • Using CGST or SGST credit for IGST before exhausting IGST credit.

    Students set off in the order the heads appear in the question.

    Fix: Always clear IGST output with IGST credit first, and only then use CGST and SGST credit.

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

    Students split the remaining IGST equally between CGST and SGST credit.

    Fix: Use CGST credit first. SGST credit can pay IGST only where CGST credit is not available for IGST.

  • Paying interest or penalty from the credit ledger.

    Students assume all balances can be used for all dues.

    Fix: Credit pays only output tax under section 49(4). Interest, penalty and fee need cash.

  • Calculating output tax on a GST-inclusive value, or counting the tax charged as part of value.

    Students overlook whether the amount given includes tax.

    Fix: Read the wording. If the amount is inclusive, divide by (100 + rate) and multiply by 100 to get the base value first.

  • Charging interest on the whole tax, including the portion paid by ITC, or counting the due date as a day of delay.

    Students apply the interest formula mechanically.

    Fix: Interest runs from the day after the due date. Where the return is late, charge interest on the portion paid through the cash ledger. State the assumption in your answer.

Worked examples

Example 1

Sharma Traders, registered in Maharashtra, made in a month: intra-State taxable supplies of ₹10,00,000 at 18% GST (9% CGST + 9% SGST) and inter-State taxable supplies of ₹4,00,000 at 18% IGST. ITC available: IGST ₹60,000, CGST ₹50,000, SGST ₹40,000. Opening ledger balances are nil. Compute the tax payable in cash.

Show the solution
  1. Output CGST = 10,00,000 × 9% = ₹90,000. Output SGST = ₹90,000. Output IGST = 4,00,000 × 18% = ₹72,000.
  2. IGST credit ₹60,000 is used first against IGST output. IGST output left = 72,000 − 60,000 = ₹12,000. IGST credit left = nil.
  3. Remaining IGST output ₹12,000 is set off against CGST credit, as CGST credit is available. CGST credit left = 50,000 − 12,000 = ₹38,000. IGST payable = nil.
  4. CGST output ₹90,000 less CGST credit ₹38,000 = CGST payable in cash ₹52,000.
  5. SGST output ₹90,000 less SGST credit ₹40,000 = SGST payable in cash ₹50,000.
  6. Total cash = 52,000 + 50,000 = ₹1,02,000. Check: total output 2,52,000 − total credit 1,50,000 = ₹1,02,000.

Answer: Cash payable is ₹1,02,000 (CGST ₹52,000 and SGST ₹50,000). IGST is fully paid through credit. Closing credit is nil in all heads.

Example 2

Mehta Pvt Ltd has output CGST ₹60,000 and output SGST ₹60,000 for a month, and ITC of CGST ₹20,000 and SGST ₹20,000. It files the return and pays the cash balance 25 days after the due date. Compute the cash payable and interest at 18% per annum on the cash-paid portion.

Show the solution
  1. CGST payable = 60,000 − 20,000 = ₹40,000. SGST payable = 60,000 − 20,000 = ₹40,000.
  2. Cash portion = 40,000 + 40,000 = ₹80,000. The portion paid through credit is not charged interest under the proviso to section 50(1), as the return is filed late.
  3. Interest = 80,000 × 18% × 25 ÷ 365.
  4. 80,000 × 18% = 14,400. 14,400 × 25 = 3,60,000. 3,60,000 ÷ 365 = ₹986.30.
  5. The interest is itself an 'other due' and must be paid through the cash ledger, not the credit ledger.

Answer: Cash tax is ₹80,000. Interest is about ₹986 (₹986.30), payable in cash. Total cash outflow is about ₹80,986.

Exam tips

  • Draw the head-wise grid before you write any narrative. Marks are given for each correct set-off step.
  • Quote section 49(5) when you explain the order of set-off, and section 49(4) when you say credit pays only output tax.
  • State your assumptions: rate of interest, days of delay, and whether the amount is tax-inclusive. Use the rate given in the question.
  • Always show a closing summary with cash paid and credit carried forward. It lets the examiner verify your answer quickly.
  • If the question mentions TDS under section 51, check the ₹2,50,000 threshold and the inter-State exclusion before deducting 1%.

Practice questions from Input Tax Credit and Computation of GST Liability

Computation of GST Liability and Payment of Tax 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 GST Liability and Payment of Tax: frequently asked questions

How do I calculate net GST payable?

Find output tax on taxable supplies, head-wise. Subtract eligible ITC in the order set by section 49(5). The balance in each head is paid in cash. Add interest or other dues if applicable.

Can ITC be used to pay interest or penalty?

No. Under section 49(4), the credit ledger is used only for output tax under the CGST or IGST Act. Interest, penalty, fee and other dues must be paid from the electronic cash ledger.

In what order is IGST credit used?

IGST credit is first used for IGST. Any balance is used for CGST and then SGST. This is the order in section 49(5)(a).

What interest rate applies to late payment of GST?

Section 50(1) says interest at a rate not exceeding 18% as notified. Where ITC is wrongly availed and utilised, the rate is not above 24% as notified. Use the rate given in the question.

Is TDS under GST the same as income tax TDS?

No. Under section 51, notified deductors deduct 1% from payments to a supplier where the contract value exceeds ₹2,50,000. The deductee claims it in the electronic cash ledger through the deductor's return.