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From Feb 2026, GST Portal has introduced an important change in ITC set-off rules in GSTR-3B

By Admin, 2/11/2026 3:53:32 AM
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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.

๐Ÿ“Œ 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.

๐Ÿ”„ New Flexible ITC Utilisation from Feb 2026

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

Example:

  • IGST liability: โ‚น5 lakh

  • IGST ITC available: โ‚น2 lakh

  • CGST/SGST ITC available: โ‚น3 lakh each

Under the new rule, after using โ‚น2 lakh IGST ITC, you can settle the remaining โ‚น3 lakh IGST liability using:
๐Ÿ”น โ‚น3 lakh CGST ITC
or
๐Ÿ”น โ‚น3 lakh SGST ITC
or
๐Ÿ”น Any combination of CGST & SGST ITC — whichever best suits your credit balances and cash planning.

๐Ÿงพ 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.

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