From February 2026 (applicable from the January 2026 tax period filings onward), the GST Portal introduced an important change in the Input Tax Credit (ITC) set-off/utilisation rules in GSTR-3B. This update helps taxpayers use their available ITC more flexibly and reduces unnecessary cash outflows.

📌 What the Change Is

Previously, under the ITC utilisation hierarchy in GSTR-3B, you had to follow a strict sequence when paying tax liabilities using ITC:

1. IGST ITC had to be used first against IGST liability.

2. Only after fully exhausting IGST ITC could you use CGST ITC, and then SGST/UTGST ITC — and in that order (CGST before SGST). This often forced businesses to pay in cash even when they had sufficient credit in CGST/SGST ledgers.

🔄 New Flexible ITC Utilisation from Feb 2026

Effective from the January 2026 tax period (reflected in returns filed in Feb 2026 and onwards):
✅ Once IGST ITC is completely utilised, CGST and SGST ITC can be applied against remaining IGST liability in any order.
✔️ You can choose to use CGST first, SGST first, or any proportion between them.
✔️ This flexibility is available when paying IGST liabilities in Table 6.1 of GSTR-3B.
✔️ It helps optimise working capital and reduces the need to use cash if you have enough CGST/SGST credit.

Example:

• IGST liability: ₹5 lakh

• IGST ITC available: ₹2 lakh

• CGST/SGST ITC available: ₹3 lakh each

Under the new rule, after using ₹2 lakh IGST ITC, you can settle the remaining ₹3 lakh IGST liability using:
🔹 ₹3 lakh CGST ITC
or
🔹 ₹3 lakh SGST ITC
or
🔹 Any combination of CGST & SGST ITC — whichever best suits your credit balances and cash planning.

🧾 Practical Impact for Taxpayers

• Improved cash flow management, as you’re less forced to pay in cash just because CGST/SGST came later in the hierarchy.

• ITC utilisation becomes more taxpayer-friendly and easier to optimise.

• Applies to GSTR-3B filings from Feb 2026 onwards for the Jan 2026 tax period.

If you want, I can also summarise the exact changes line-by-line compared with the old GST ITC utilisation hierarchy.