Your working capital requirement may increase from 1st February 2019

Working capital play vital role in business as it covers company’s short term expenses, including inventory, short-term debts and operating expenses.

What happens when all of a sudden it gets increased. Recently GST law changed the pattern of utilization of Input tax credit which may increase your working capital requirement in future though you have input credit in GST ledger. Let’s understand how it would happen.

Upto 31.01.2019 we would first utilize IGST input against IGST liability, CGST input against CGST liability, SGST input against SGST liability. Thereafter we would utilize IGST input against CGST and SGST liabilities.

From 01.02.2019 this utilizing pattern has been changed. First we have to use IGST input against IGST/CGST/SGST liabilities respectively then CGST/SGST input will be used from their respective head.

An Example will clarify that how GST will raise working capital requirement:

Adjustment of Input tax credit upto 31.01.2019
TaxesOutput taxITCLiabilities after ITC UtilizationBalance ITC(Net Liabilities)/ ITC balance
IGST501000200
CGST8070000
SGST8060000
Adjustment of Input tax credit from 01.02.2019
TaxesOutput taxITCLiabilities after ITC UtilizationBalance ITC(Net Liabilities)/ ITC balance
IGST50100000
CGST8070307040
SGST80608060(20)

Example clears that you have Input tax credit of CGST of Rs.40 still liabilities of Rs.20 of SGST arises. That was not happened before 01.02.2019. This Rs.20 will increase your working capital requirement.

 

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