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The credit ledger shows more total ITC than the month's tax, yet GSTR-3B still asks for a cash payment, and the student cannot see why.
Section 49, 49A and 49B with Rule 88A fix the order: IGST credit first against IGST, then CGST and SGST; CGST credit against CGST then IGST; SGST credit against SGST then IGST; never CGST to SGST or SGST to CGST.
A head-by-head grid of liability (IGST, CGST, SGST) against credit (IGST, CGST, SGST), filled in the legal order before working out cash payable.
Cash payable per head is predicted correctly before the 20th, and unusable credit in a head is identified and carried forward.
GST law fixes which credit can pay which tax. IGST credit is used first, against IGST and then against CGST and SGST. CGST credit pays CGST and then IGST. SGST credit pays SGST and then IGST. CGST and SGST credits can never pay each other, which is why you may pay cash even when your total credit is larger than your total tax.
Which credit pays which tax, and in what order?
The rules sit in Section 49(5), Section 49A and Section 49B of the CGST Act, 2017, and Rule 88A of the CGST Rules, 2017. In plain terms:
| Credit you hold | Pays IGST? | Pays CGST? | Pays SGST? | Order |
|---|---|---|---|---|
| IGST credit | Yes, first | Yes, after IGST | Yes, after IGST | Must be used fully before CGST or SGST credit |
| CGST credit | Yes, only after IGST credit is used up | Yes, first | Never | CGST, then IGST |
| SGST credit | Yes, only after IGST and CGST credit for IGST | Never | Yes, first | SGST, then IGST |
Remember: SGST includes UTGST for union territories without a legislature.
Why do I still pay cash when my total credit is larger than my total tax?
Three common reasons:
- Credit is in the wrong head. You hold SGST credit but owe CGST.
- An IGST liability eats the flexible credit. IGST credit must go to IGST first.
- Reversals. Credit reversed under Rule 37 or Rule 42 has left the ledger, so the balance you remember is higher than what is actually there.
Worked example
For September, a trader in Pune has:
- CGST liability: ₹30,000
- SGST liability: ₹30,000
- IGST liability: nil
- CGST credit: nil
- SGST credit: ₹60,000
- IGST credit: nil
Total credit is ₹60,000 and total tax is ₹60,000, so it looks like no cash is due. Apply the order:
| Step | Liability | Credit used | Left to pay |
|---|---|---|---|
| SGST liability paid from SGST credit | ₹30,000 | ₹30,000 | Nil |
| CGST liability from CGST credit | ₹30,000 | Nil, none held | ₹30,000 |
| CGST from SGST credit | Not allowed | Nil | ₹30,000 in cash |
Result: ₹30,000 of CGST is paid in cash, and ₹30,000 of SGST credit carries forward. Check: ₹60,000 credit minus ₹30,000 used = ₹30,000 carried. Nothing is lost, but cash goes out this month.
Why does buying from another state help?
A purchase from another state carries IGST at, say, 18 percent. IGST credit is the most flexible, because it can pay IGST, CGST or SGST. A purchase within your state gives you 9 percent CGST plus 9 percent SGST credit, and those two halves are locked to their own heads. A business with mostly local purchases and some inter-state sales tends to build up the problem in the example above. That is a reason to track credit head by head, not to change suppliers for tax alone.
What to read next
- Next in this series: Why must I pay 1 percent of my GST in cash even with ITC?
- Head-by-head matching: IGST, CGST and SGST reconciliation
- The basics: What is ITC in GST?
- Matching at volume: GST reconciliation software
Inward GST matching (GSTR-2A, GSTR-2B, ITC and IMS) is on the TransactIG roadmap.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →