Section 18 IGST Act - Transfer of Input Tax Credit
Section 18 of the Integrated Goods and Services Tax Act, 2017 deals with the transfer and settlement of tax amounts when credit of integrated tax (IGST) is utilised for payment of central tax, Union territory tax or State tax.
What Section 18 provides
When a registered person uses eligible IGST credit to discharge another permitted GST liability, Section 18 provides the statutory mechanism for a corresponding movement of funds from the integrated tax account. The provision ensures that the government ultimately entitled to the tax receives the appropriate amount after cross-utilisation of IGST credit.
Section 18 - statutory substance
- Payment of central tax: where IGST credit is utilised for payment of central tax in accordance with section 49(5) of the Central Goods and Services Tax Act, 2017, the integrated tax collected is reduced by an amount equal to the credit so utilised. The Central Government transfers an equal amount from the integrated tax account to the central tax account in the prescribed manner and time.
- Payment of Union territory tax: where IGST credit is utilised for payment of Union territory tax in accordance with section 9 of the Union Territory Goods and Services Tax Act, 2017, the integrated tax collected is correspondingly reduced and an equal amount is transferred from the integrated tax account to the Union territory tax account in the prescribed manner and time.
- Payment of State tax: where IGST credit is utilised for payment of State tax under the applicable State Goods and Services Tax Act, the integrated tax collected is reduced by the credit so utilised. The amount is apportioned to the appropriate State Government and transferred to that State's account in the prescribed manner and time.
For the exact enacted wording and current legislative text, refer to the official India Code version of the Integrated Goods and Services Tax Act, 2017.
Meaning of appropriate State
The Explanation to Section 18 provides that, for the purposes of Chapter VIII, the expression "appropriate State", in relation to a taxable person, means the State or Union territory where that person is registered or is liable to be registered under the Central Goods and Services Tax Act, 2017.
How the provision works
| IGST credit used to pay | Effect under Section 18 | Destination of corresponding amount |
|---|---|---|
| Central tax | Integrated tax account is reduced by the amount of IGST credit utilised | Central tax account |
| Union territory tax | Integrated tax account is reduced by the amount of IGST credit utilised | Relevant Union territory tax account |
| State tax | Integrated tax account is reduced and the amount is apportioned | Account of the appropriate State Government |
Relationship with the CGST Act
Section 18 expressly refers to utilisation of IGST credit for central tax in accordance with section 49(5) of the CGST Act. The broader statutory framework for utilisation of input tax credit also includes sections 49A and 49B of the CGST Act and the applicable rules. These provisions should therefore be read together when determining the permitted order and manner of utilisation of GST input tax credit.
Why Section 18 matters
GST allows cross-utilisation of eligible input tax credit subject to the statutory order and restrictions. Because IGST is collected by the Central Government on inter-State supplies, a mechanism is required to settle the revenue when IGST credit is ultimately used against another tax component. Section 18 performs that settlement function and supports the fiscal allocation of GST revenue between the Centre, States and Union territories.