Companies are urging the GST Council to allow utilisation of unused tax credits from one state to pay liabilities in another, promising greater liquidity and simplified compliance amid current restrictions.
Businesses are pressing the GST Council to consider a change that would let them use unused tax credits from one state registration to pay liabilities in another, a move they say would ease a persistent cash-flow problem for companies operating nationwide.
Under the current goods and services tax system, firms must register separately in each state where they operate, and input tax credit is tracked at the level of each registration. That means credit accumulated in one state cannot ordinarily be used to meet tax dues in another, even when both belong to the same company and are covered by the same Permanent Account Number.
That structure can leave companies with stranded credit in one state while they are forced to pay cash elsewhere. Tax experts say one possible compromise would be to allow cross-state use of Central Goods and Services Tax and Integrated Goods and Services Tax credits, while leaving State Goods and Services Tax out of the arrangement because of the complications around state revenue accounting.
Abhishek Jain, indirect tax head and partner at KPMG, told Business Standard that such pooling would be a logical next step for central levies. He said the state component is more difficult because it is tied to individual state revenues and settlement systems, but argued that allowing central credits to move more freely would release working capital without affecting what accrues to states.
The demand has been especially strong in works contracts, where tax is often paid upfront but credits on purchases can build up for long periods before they can be used. Vivek Jalan, partner at Tax Connect Advisory Services, said contractors may pay GST in cash when advances are received and then sit on unutilised credit until a project is finished, which can take years. He said even allowing the transfer of the central tax portion alone could free up a large share of trapped credit, improve cash flows and reduce disputes.
The proposal comes against the backdrop of the GST credit rules, which already impose a strict order of utilisation and treat each state registration as separate for credit purposes. For businesses, the change being sought would not alter the basic tax structure, but it could make the system less rigid and reduce the amount of capital locked in the tax chain.
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