GST liability is not simply the tax charged on sales. It is the net of output tax minus eligible input tax credit. Understanding the definitions and the set-off mechanism is essential for accurate tax payment and compliance.
Output Tax
Section 2(82) of the CGST Act defines output tax as the tax chargeable under the CGST Act on taxable supply of goods or services or both made by a taxable person or by his agent. It excludes tax payable on reverse charge basis.
Simply put, output tax is the GST charged on your outward supplies. It includes:
- CGST and SGST/UTGST on intra-state supplies
- IGST on inter-state supplies
- Tax collected at the time of supply and reported in GSTR-1 and GSTR-3B
Output tax liability is the total tax due on all taxable supplies for a tax period.
Input Tax
Section 2(62) defines input tax as IGST, CGST, SGST or UTGST charged on any supply of goods or services or both made to a registered person. It includes tax payable under reverse charge, but excludes tax paid under the composition levy.
Input tax includes:
- GST charged by suppliers on purchases of goods and services
- GST paid on imports
- GST paid under reverse charge
- GST on capital goods
But input tax becomes eligible ITC only if the conditions of Section 16 are met:
- Possession of tax invoice or debit note
- Receipt of goods or services or both
- Tax actually paid to the Government by the supplier
- Furnishing of return under Section 39
- If goods received in instalments, ITC available on last instalment
- Payment to supplier within 180 days, failing which ITC must be reversed
How GST Liability Is Computed
The formula is:
Net GST payable = Output tax liability – Eligible input tax credit
The credit set-off is governed by Section 49, Section 49A, Section 49B and Rule 88A. The order of set-off is:
- IGST credit first against IGST liability
- Balance IGST credit against CGST and SGST/UTGST in any order
- CGST credit against CGST only
- SGST/UTGST credit against SGST/UTGST only
Example
A registered person has:
Output tax liability for March:
- IGST: Rs 1,00,000
- CGST: Rs 60,000
- SGST: Rs 60,000
Eligible input tax credit:
- IGST: Rs 1,20,000
- CGST: Rs 40,000
- SGST: Rs 50,000
Set-off:
- IGST credit of Rs 1,00,000 used against IGST liability. Balance IGST credit Rs 20,000.
- Balance IGST credit Rs 20,000 used against CGST liability.
- CGST liability remaining Rs 40,000 set off from CGST credit Rs 40,000. CGST credit exhausted.
- SGST liability Rs 60,000 set off from SGST credit Rs 50,000. Balance SGST payable Rs 10,000.
Net GST payable in cash: Rs 10,000 (SGST).
Electronic Ledgers
GST payments are managed through three electronic ledgers on the GST portal:
- Electronic Liability Register: Shows output tax, interest, penalty and other dues.
- Electronic Credit Ledger: Reflects eligible ITC and is used to set off liability.
- Electronic Cash Ledger: Reflects cash deposits made through challan, used for tax, interest, penalty and fees.
Output tax is first debited to the liability register. ITC is utilised from the credit ledger. Any balance is paid from the cash ledger.
Common Mistakes
- Treating all input tax as eligible ITC without verifying Section 16 conditions
- Ignoring blocked credits under Section 17(5)
- Wrong order of set-off
- Not reversing ITC for non-payment to supplier within 180 days
- Not accounting for reverse charge while computing output tax
How Anuj Desai & Associates Can Help
We help clients compute monthly GST liability accurately, manage electronic ledgers, reconcile GSTR-2B with purchase registers, identify blocked credits, correct set-off order and prepare for GST audits and assessments.
Contact Anuj Desai & Associates
Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230