The basic concept of GST is based on providing the set-off for the tax paid on the inputs used and this is given effect through the concept of input tax credit. This input tax credit means setting off the amount of input tax by a registered dealer against the amount of his output tax. The GST is based on the value addition to the goods and the related tax liability of the dealer can be arrived at by the supplier by discharging input tax credit from tax collected on supplies during the payment period. 

The credit would be permitted to be utilized in the following manner: 

• ITC of CGST allowed for payment of CGST & IGST in that order. 
• ITC of SGST allowed for payment of SGST & IGST in that order. 
• ITC of IGST allowed for payment of IGST, CGST & SGST in that order. 
• ITC of CGST cannot be used for payment of SGST and vice versa. 

Following is the hierarchy of utilisation of Input Tax Credit: 

• Accounts would be settled periodically between the Centre and the States to ensure that the credit of SGST used for discharge of IGST is transferred to the consumer state. 
• Similarly the IGST used for payment of SGST would be transferred by the Centre to the Importing State. 
• Further the SGST portion of IGST collected on B2C supplies would also be transferred by the Centre to the destination State. 
• The transfer of funds would be carried out on the basis of information contained in the Returns filed by the taxpayers.