Learn Adjustment of Credit in case of CGST SGST and IGST. Under the Goods and Services Tax (GST) regime, businesses can reduce their tax liability by using Input Tax Credit (ITC). However, the way ITC is adjusted for CGST, SGST, and IGST follows specific rules.
When you apply these rules correctly, you improve cash flow, avoid penalties, and stay fully compliant. Therefore, every business should understand the adjustment mechanism clearly.
What is Input Tax Credit (ITC)?
Input Tax Credit (ITC) allows businesses to reduce the GST they pay on sales by the GST already paid on purchases.
For example:
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GST on Sales = ₹18,000 (output tax)
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GST paid on purchases = ₹10,000 (input tax)
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Net GST payable = ₹8,000
Thus, ITC works like a tax shield for businesses. However, its adjustment depends on the type of GST involved.
✅ Rules for Adjustment of Credit
To make things simple, the government has fixed an order of utilization. You must follow it strictly.
| Type of Credit | First Utilization | Then Utilization |
|---|---|---|
| IGST Credit | IGST liability | CGST liability → SGST liability |
| CGST Credit | CGST liability | IGST liability (not SGST) |
| SGST Credit | SGST liability | IGST liability (not CGST) |
👉 Important: CGST credit never adjusts SGST liability and SGST credit never adjusts CGST liability.
Example of Credit Adjustment
Scenario:
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IGST Credit Available: ₹30,000
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CGST Liability: ₹15,000
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SGST Liability: ₹15,000
Step 1: Adjust IGST Credit
You first use IGST credit against IGST liability. If no IGST liability exists, you move to CGST and SGST.
Step 2: Apply Rules
Here, IGST Credit of ₹30,000 can cover:
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₹15,000 → CGST liability
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₹15,000 → SGST liability
✅ Final Outcome: No cash payment required because the ITC fully adjusted both liabilities.
Flow of Credit Adjustment
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IGST Credit → IGST → CGST → SGST
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CGST Credit → CGST → IGST
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SGST Credit → SGST → IGST
👉 Remember: CGST and SGST credits never cross each other.
Importance of Correct Credit Adjustment
Businesses benefit in many ways when they adjust ITC correctly:
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Lower Tax Burden: Proper utilization reduces overall payable tax.
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Smooth Compliance: Accurate reporting prevents return mismatches.
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Penalty Avoidance: Correct usage helps avoid interest and penalties.
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Better Cash Flow: Companies save money by maximizing credits.
Therefore, credit adjustment is not just a compliance activity; it is also a financial strategy.
Common Mistakes to Avoid
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Using CGST credit for SGST liability (prohibited).
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Ignoring reconciliation of ITC with GSTR-2B.
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Claiming ITC on ineligible items such as personal expenses.
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Missing deadlines for ITC claim, which leads to losses.
By avoiding these mistakes, businesses can protect both compliance and finances.
Conclusion: Get Expert Help for Credit Adjustment
The rules for adjustment of CGST, SGST, and IGST credit are easy to follow once you know the order of utilization. However, even a small error can lead to penalties. Therefore, businesses should handle ITC adjustments carefully.
👉 Need professional help with GST credit adjustments? Contact us today and optimize your tax savings.