Impact of Section 49A On Working Capital limits.

[TirumalaRao Vuppala]

Dear Sirs,

What is the impact of Section 49A on working capital limits? If IGST not available to adjust to output tax of CGST & SGST, we will be pay by way of Cash. As per my knowledge up to 31-01-2019 ITC GST adjustment is correct. What is the use to dealers as per new adjustment system of GST?

[Spudarjunan S]

Dear Sir,

The probable reason for insertion of section 49A under GST Act is to utilise the IGST credit in first against the tax liability in order to avoid the complexity to Central Government to apportionate the IGST credits to the states.

The impact of Section 49A is accumulation of CGST credit and cash outflow for paying SGST liability. The same is being explained through illustration below:-

Electronic credit ledger details

Particulars	IGST	CGST	SGST
Output liability	1,00,000	1,00,000	1,00,000
Input Tax Credit	2,00,000	80,000	80,000
Tran credit c/f		50,000

Utilisation of Credit for making payment:-

(a) Before insertion of section 49A

Description	Payable	ITC Available	Paid through ITC			Additional Cash Required
			IGST	CGST	SGST
IGST	1,00,000	2,00,000	1,00,000	-	-	-
CGST	1,00,000	1,30,000	-	1,00,00	-	-
SGST	1,00,000	80,000	20,000	-	80,000	-

IGST ITC balance = ₹ 80,000/- (2,00,000 – 1,00,000 – 20,000)

CGST ITC balance = ₹ 30,000/- (1,30,000 – 1,00,000)

SGST ITC balance = NIL (80,000 – 80,000)

(b) After insertion of Section 49A

Description	Payable	ITC Available	Paid through ITC			Additional Cash Required
			IGST	CGST	SGST
IGST	1,00,000	2,00,000	1,00,000	-	-	-
CGST	1,00,000	1,30,000	1,00,000	-	-	-
SGST	1,00,000	80,000	-	-	80,000	20,000

IGST ITC balance = NIL (2,00,000 – 1,00,000 – 1,00,000)

CGST ITC balance = ₹ 1,30,000/- (1,30,000 - NIL)

SGST ITC balance = NIL (80,000 – 80,000)

Additional Cash Payable SGST - ₹ 20,000/-

AI Summary

IGST credit utilisation now mandated, causing accumulation of CGST credits and cash outflow to meet SGST liabilities. Section 49A mandates that IGST credit be applied first against tax liabilities, a rule intended to avoid apportionment complexity. This priority causes CGST credits to accumulate while certain SGST liabilities must be met in cash, producing an immediate working-capital strain despite available overall input tax credit.