New change in ITC set off rules from April 2026

Summary

In this detailed video, Vivek from Fintex Pro explains the latest changes in GST cross-utilization and ITC rules for GSTR-3B filing. He discusses the original ITC adjustment hierarchy for IGST, CGST, and SGST, the positive benefits initially introduced by the January 30, 2026 advisory, and how it allowed taxpayers more flexibility in managing liabilities. Vivek also highlights the subsequent reversal of these changes, emphasizing the government’s approach of implementing portal updates first and legal amendments later. The video offers practical insights for taxpayers and professionals, guiding them on correctly utilizing ITC and navigating advisory updates to avoid errors during filing.

Takeaways

• 😀 The GST advisory on cross-utilization of ITC has been updated as of January 30, 2026.
• 😀 Previously, the adjustment hierarchy for IGST, CGST, and SGST was strictly defined, with IGST being adjusted first, followed by CGST and SGST based on availability.
• 😀 The updated advisory allows for more flexible utilization of ITC, particularly allowing CGST and SGST to be adjusted against each other in any sequence after IGST is exhausted.
• 😀 This change benefits taxpayers by enabling better management of ITC balances, especially when SGST has a significant balance.
• 😀 The update was seen as a positive change for taxpayers but faced challenges as it was an advisory rather than a formal legal change.
• 😀 The government's practice is to implement changes through the portal first, before incorporating them into the GST Act or Rules.
• 😀 The advisory aimed to address taxpayer concerns about paying cash for CGST liabilities when SGST balances were high, leading to financial difficulties.
• 😀 Despite the positive changes, the advisory was updated again, removing the flexibility and returning to the original structure due to lack of legal backing in the GST Rules.
• 😀 Vivek highlights the challenge of balancing between government interests and taxpayer benefits, particularly in the case of GST advisories versus legal amendments.
• 😀 The changes show a gap between advisories and legal updates, where taxpayers experience immediate benefits, but long-term solutions require changes to the law or rules.
• 😀 Tax professionals are encouraged to stay informed and provide clear guidance to taxpayers, especially regarding the ongoing changes in the GST system.

Q & A

What is the recent change related to GSTR 3B filing?

The recent change involves an update to the cross-utilization of ITC (Input Tax Credit) rules, which was previously advisory and has now been adjusted as per new guidelines.

What is the priority sequence for utilizing ITC in GSTR 3B filing?

The priority sequence for utilizing ITC starts with IGST input being adjusted against IGST liabilities. After IGST is exhausted, CGST input is used against CGST liabilities, and SGST input is adjusted against SGST liabilities. If balances remain, adjustments can be made across different tax categories.

What was the issue with cross-utilization of ITC before the advisory change?

Before the advisory change, taxpayers often faced situations where SGST balances were high, but they couldn’t utilize them effectively, especially when there was insufficient CGST input. This led to the need to pay the remaining CGST liability in cash.

How did the January 30, 2026 advisory improve the cross-utilization process?

The advisory allowed IGST input to be utilized first to pay IGST liabilities, followed by the possibility of adjusting CGST and SGST in any sequence, which provided more flexibility and improved management of the ITC balance.

What was the significant benefit for taxpayers from the new advisory?

The new advisory allowed taxpayers to prioritize using SGST input to pay IGST liabilities first, reducing the burden of paying cash for CGST liabilities, and providing better management of ITC balances across different tax categories.

Why did the advisory regarding cross-utilization of ITC cause confusion among taxpayers?

The advisory introduced changes that were not immediately backed by changes in the GST laws or rules, creating confusion about the legal enforceability of these changes, and leading some to question the validity of the advisory itself.

What is the role of the GST portal in implementing changes to ITC utilization?

The GST portal plays a key role in implementing changes such as the prioritization of IGST first in ITC utilization, even before it is legally formalized through amendments in the GST laws or rules. This is a common practice, where portal updates precede legal amendments.

How does the government's approach to tax payer benefits differ from revenue protection?

The government’s approach focuses on safeguarding revenue by quickly implementing changes that benefit its interests, such as adjusting ITC utilization rules on the portal. However, when it comes to taxpayer benefits, the government waits for formal amendments in the law to reflect these changes.

What happened to the advisory after it was initially introduced?

After the initial positive response to the advisory, it was later updated to remove the flexibility it provided for ITC utilization, as it was not fully supported by changes in the GST law. The advisory was adjusted to follow the old structure of ITC utilization.

What is the likely outcome of this advisory change for taxpayers?

Taxpayers will likely return to the old structure of ITC utilization, where IGST is prioritized, followed by CGST and SGST. While this reverts the system, it removes the flexibility that taxpayers had hoped for in managing their ITC balance more efficiently.