GST 2.0: FAQ answers concerns on tax credit; ITC can be fully utilised to offset output liability, govt clarified earlier

Dealers, especially in the FMCG segment, are still having concerns about the implementation of GST 2.0 with effect from September 22. The concerns pertain to the input tax credit, even though the government has clarified that ITC can be fully utilised to offset any output tax liabilities.

On September 3, when the finance minister announced the new GST rates and a slew of reforms approved by the GST Council, the Central Board of Indirect Taxes and Customs (CBIC) issued a Frequently Asked Questions (FAQs), covering various aspects. Here are the key queries related to the matter.

ITC treatment on purchases made before September 22.

Section 16(1) of CGST Act entitles a registered person to take credit of the input tax charged on his inward supplies, which he uses or intends to use in the course or furtherance of his business, subject to conditions and restrictions which may be prescribed and, in the manner, provided under section 49 of the CGST Act 2017, which gets credited to his e- credit ledger.

Accordingly, if a registered person receives an inward supply and tax has been duly charged on it, at a rate which is in consonance with the rate prevailing at the time of such supply, the said registered person is entitled to the credit of such tax paid, subject to the other conditions/ restrictions and manner specified in section 49 of the CGST Act 2017.

The GST rate was reduced on outward supplies after 22nd September, but the ITC of higher GST is still present in the ledger. Can it be used

The input tax credit, once duly availed in the e-credit ledger, can be used for the discharge of any output tax liability in terms of provisions of section 49(4) of the CGST Act and rules made thereunder.

Reversal of ITC, if outward supply is exempt under the new rate.

The ITC can be utilised to discharge outward liability for supplies of goods/services or both made till 21st September, 2025. However, for supplies made on or after 22nd September, 2025, when the rate change is affected, ITC will have to be reversed as per the provisions of the CGST Act, 2017.