GST ITC Set-Off Rules Overhauled from January 2026: A Complete Practical Guide for Delhi NCR Businesses
GST ITC GSTR-3B Changes: What NCR Businesses Must Know
The GST portal (GSTR-3B) has undergone a significant system enhancement starting from the January 2026 tax period. This change directly impacts how businesses in Delhi, Noida, Gurugram, Faridabad, and across the NCR region utilise their Input Tax Credit (ITC) to discharge GST liabilities. While this is a portal-level update rather than a statutory amendment, its practical implications for cash flow management and working capital optimisation are substantial.
As a Chartered Accountant firm serving businesses across Delhi NCR, we break down exactly what has changed, what it means for you, and how to make the most of this new flexibility in your GSTR-3B filings.
Understanding GST Input Tax Credit (ITC): A Quick Primer
Before diving into the change, let us briefly recap how ITC works under the GST framework. When a business purchases goods or services, it pays GST to its supplier. This GST paid is called Input Tax Credit, which can be used to offset the business’s own output GST liability — avoiding double taxation. GST in India operates across three categories:
- IGST (Integrated GST) — charged on inter-state transactions
- CGST (Central GST) — charged on intra-state transactions, collected by the Centre
- SGST (State GST) — charged on intra-state transactions, collected by the State
The order in which these credits can be used is governed by Section 49 of the CGST Act, 2017 and Rule 88A of the CGST Rules, 2017. The January 2026 change modifies how the GST portal implements this order — making it far more practical for taxpayers.
The Old System: Rigid and Often Inefficient
Until December 2025, the GSTR-3B portal followed a strict, automated sequence for ITC utilisation:
- Step 1: IGST ITC must be exhausted first against IGST liability.
- Step 2: Once IGST ITC was fully used, the portal automatically applied CGST ITC next.
- Step 3: Only after CGST was exhausted could SGST ITC be applied.
This rigid sequence created a practical problem. Many businesses had unequal balances across their CGST and SGST ledgers. The forced order sometimes meant a business with a large SGST balance had to make cash payments for IGST liability even when SGST credits could cover it — simply because CGST had to be used first and was insufficient.
| Key Pain Point (Old System): A Delhi NCR manufacturer with Rs. 1,50,000 CGST ITC and Rs. 4,00,000 SGST ITC, facing a Rs. 5,00,000 IGST liability, was forced to use CGST first — and could end up short, making unnecessary cash payment even with abundant SGST credits available. |
The New System (January 2026 Onwards): Flexible and Business-Friendly
From the January 2026 return period, GSTN has enhanced Table 6.1 of the GSTR-3B return form with the following key change:
What Remains Unchanged: IGST ITC must still be fully exhausted first before any other credits are used against IGST liability. This remains a statutory requirement under Section 49 and Rule 88A.
What Has Changed: Once IGST ITC is exhausted, the taxpayer now has complete flexibility to choose the mix of CGST and SGST credits to pay the remaining IGST liability. The portal no longer forces a CGST-first sequence.
This means you can now:
- Use only CGST ITC to clear remaining IGST liability
- Use only SGST ITC to clear remaining IGST liability
- Use any proportionate combination of CGST and SGST ITC
This seemingly small change has a meaningful impact on how businesses plan their monthly GST filings and manage working capital.
Old vs. New System: At a Glance
| Feature | Old System (Up to Dec 2025) | New System (From Jan 2026) |
| IGST ITC Usage | Must be used first | Same – no change |
| After IGST ITC Exhausted | Forced order: CGST then SGST | Taxpayer chooses any mix |
| CGST vs SGST Choice | No flexibility available | Full flexibility to taxpayer |
| Cash Payment Risk | Higher – forced sequence could trigger cash | Lower – optimise credits to reduce cash |
| Working Capital Impact | Suboptimal for uneven balances | Better optimisation possible |
| Portal Logic | Strict automated sequence | Choice-based utilisation |
| Legal Basis | Section 49 CGST Act + Rule 88A | Same law; portal implements flexibly |
| Applicable From | N/A | January 2026 GSTR-3B onwards |
Practical Examples: See the Difference in Action
Example 1: Gurugram-Based IT Services Company — TechServe Pvt. Ltd.
TechServe Pvt. Ltd. is an IT company in Gurugram that makes both intra-state and inter-state supply of services. For January 2026, it has the following ITC balances:
| Tax Head | ITC Available (Rs.) |
| IGST | 1,50,000 |
| CGST | 2,50,000 |
| SGST | 2,00,000 |
Output IGST Liability for January 2026: Rs. 5,00,000
| Step | Old System (Up to Dec 2025) | New System (From Jan 2026) | ||
| Step 1 | Use IGST ITC: Rs. 1,50,000 → Remaining IGST = Rs. 3,50,000 | Same: IGST ITC Rs. 1,50,000 → Remaining = Rs. 3,50,000 | ||
| Step 2 | Force CGST: Rs. 2,50,000 → Remaining IGST = Rs. 1,00,000 | Choose any mix: e.g. CGST Rs. 1,50,000 + SGST Rs. 2,00,000 | ||
| Step 3 | Force SGST: Rs. 1,00,000 → IGST cleared | IGST fully cleared with chosen mix | ||
| Remaining ITC | CGST: Rs. 0 | SGST: Rs. 1,00,000 | CGST: Rs. 1,00,000 | SGST: Rs. 0 (or any other outcome) | ||
| Flexibility | None – portal decides | Taxpayer decides optimal mix | ||
| Outcome with New System: TechServe can strategically decide how much CGST vs SGST to use — for example, preserving CGST balance if it expects large intra-state output liabilities next month, or using SGST first if that credit tends to accumulate. | ||||
Example 2: Noida-Based Manufacturer — Precisioncraft Industries
Precisioncraft Industries is a manufacturing unit in Noida that primarily makes inter-state (IGST) sales but accumulates SGST credits from local purchases within UP.
| Tax Head | ITC Balance (Rs.) |
| IGST | 50,000 |
| CGST | 80,000 |
| SGST | 3,50,000 |
IGST Liability: Rs. 4,00,000
Under the old system, the portal forces IGST (Rs. 50,000) then CGST (Rs. 80,000) then SGST (Rs. 2,70,000) leaving no choice. Under the new system, Precisioncraft can:
- Exhaust IGST first (Rs. 50,000) — mandatory
- Then strategically allocate between CGST (Rs. 80,000) and SGST (Rs. 3,50,000) to clear remaining Rs. 3,50,000 IGST liability
- Decision can be based on expected future liabilities, working capital needs, and credit accumulation patterns
Why This Change Matters Specifically for Delhi NCR Businesses
Delhi NCR is one of India’s largest commercial and industrial hubs, hosting hundreds of thousands of GST-registered businesses — from large corporates in Gurugram and Noida to MSMEs and traders in Delhi, Faridabad, and Ghaziabad. Here is why this update is especially relevant:
1. Better Cash Flow Management
Businesses with uneven ITC balances — particularly those who make more intra-state purchases (accumulating SGST) but primarily make inter-state sales (IGST liability) — can now manage credit utilisation strategically. This directly improves working capital and reduces unnecessary cash outflows.
2. Reduced Dependence on Cash Payment for GST
One of the biggest frustrations under the old system was being forced to pay GST in cash even when sufficient ITC existed — simply because the portal applied the wrong credit first. The new system eliminates this, reducing avoidable cash outflows.
3. Smarter Monthly Tax Planning
With flexibility comes planning power. Businesses with multiple GST registrations, complex supply chains, or seasonal credit fluctuations can now plan their monthly ITC utilisation precisely — keeping an eye on expected future liabilities before filing each month.
4. MSMEs Benefit the Most
Small and medium-sized businesses operate on tighter working capital. The previous forced sequence could lock up credits unnecessarily. The new flexibility ensures ITC is applied where it makes the most financial sense — a win for the MSME sector that drives Delhi NCR’s economy.
Compliance Requirements: Your Action Checklist
While the portal is now more flexible, compliance responsibilities remain unchanged. Here is what every business and CFO needs to ensure:
| # | Action Item | Why It Matters |
| 1 | Always exhaust IGST ITC first | Statutory requirement – not merely a portal rule |
| 2 | Reconcile GSTR-2B with books every month | Ensures ITC claimed matches supplier-reported figures |
| 3 | Plan ITC utilisation before filing GSTR-3B | Review CGST/SGST balances and plan optimal allocation |
| 4 | Maintain accurate electronic credit ledger | GST portal credit ledger must reflect correct balances |
| 5 | Document your ITC utilisation strategy | Be audit-ready with justification for credit choices |
| 6 | Do not claim ineligible ITC (Section 17(5)) | Blocked credits cannot be used regardless of flexibility |
| 7 | File GSTR-3B on time | Late filing attracts interest and penalties – no change here |
| Important Legal Note: This is a GSTN portal enhancement in Table 6.1 of GSTR-3B, NOT a statutory amendment to the CGST Act or Rules. The law (Section 49 of CGST Act and Rule 88A of CGST Rules) continues to govern the fundamental principles of ITC utilisation. During audits or assessments, the legal provisions take precedence. Always consult your Chartered Accountant for situation-specific advice. |
Frequently Asked Questions (FAQs)
Q: Does this mean I can now use SGST credit to pay CGST liability?
A: No. The flexibility only applies to payment of IGST liability after IGST ITC is exhausted. Cross-utilisation between CGST and SGST for their own respective liabilities is still not permitted under law.
Q: Is this a permanent change or a temporary portal advisory?
A: This is a portal-level enhancement implemented by GSTN for returns from January 2026 onwards. While it aligns with the intent of the law, monitor CBIC notifications for any formal statutory changes.
Q: Will this affect GSTR-3B returns filed before January 2026?
A: No. This change is prospective and applies only to GSTR-3B filed for the January 2026 tax period and onwards. Past returns are not affected.
Q: Do I need to do anything differently when filing my GSTR-3B now?
A: Yes. When filing from January 2026, after IGST ITC is exhausted, the portal allows you to enter the amounts of CGST and SGST you wish to apply. Plan this in advance — don’t just accept any default allocation.
Q: My business has multiple GST registrations in Delhi and UP. How does this affect me?
A: Each GSTIN is treated independently. The flexibility applies within each registration separately. Your CA can help plan the optimal credit utilisation strategy across registrations.
Q: Can the GST department question my choice of CGST vs. SGST utilisation during an audit?
A: The new system officially grants taxpayers this flexibility, so your choices are legally defensible as long as IGST ITC was exhausted first and all other provisions were followed. Maintaining documentation of your reasoning is always good practice.
Q: What if I make an error in ITC utilisation in GSTR-3B?
A: Errors can be corrected through the amendment provision in subsequent GSTR-3B filings, subject to applicable deadlines. Consult your CA immediately if you identify an error.
Need Expert GST Guidance for Your Delhi NCR Business?
The new ITC flexibility is a genuine opportunity — but only if used correctly. Our experienced Chartered Accountants in Delhi NCR specialise in GST compliance, ITC optimisation, and GSTR-3B advisory for businesses of all sizes.
Schedule a Free GST Consultation Today.
