The Three Electronic Ledgers

A business may hold Rs 5 lakh of credit and still have to pay cash. Its credit may be of the wrong kind for its liability, or blocked from paying the liability it has, or the liability may not be tax at all. The reason in each case is the structure of section 49 of the CGST Act. It keeps a registered person’s money, credit and dues in three separate ledgers, and sets out which can pay which.

The previous guide dealt with GSTR-3B, where tax is declared. This guide deals with how it is paid.

Three ledgers, three functions

The electronic cash ledger holds money deposited. Section 49(1) credits to it “every deposit made towards tax, interest, penalty, fee or any other amount”. The date of deposit is the date the amount is credited to the Government’s account in the authorised bank.

The electronic credit ledger holds input tax credit. Section 49(2) credits to it “the input tax credit as self-assessed in the return”.

The electronic liability register records what is owed. Section 49(7) requires “all liabilities of a taxable person” to be recorded in it: tax, interest, late fees, penalties and demands.

The ledgers are kept separately for each tax: integrated, central, State or Union territory, and cess. A balance of central tax in the cash ledger is not a balance of State tax.

What each ledger can pay

The two payment ledgers differ in what they can discharge.

The cash ledger pays anything. Under section 49(3), it may be used “for making any payment towards tax, interest, penalty, fees or any other amount payable”.

The credit ledger pays only output tax. Under section 49(4), it may be used “for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act”. Interest, late fees and penalties cannot be paid from credit. Neither can tax payable under reverse charge. Section 2(82) defines output tax to exclude “tax payable by him on reverse charge basis”, so it is discharged in cash. A business with a large credit balance and a late fee to pay pays the fee in cash.

Which credit pays which tax

Section 49(5) sets cross-utilisation rules. They follow from the constitutional split described in the first guide: central tax belongs to the Centre, State tax to the State, and integrated tax is shared.

• Integrated tax credit pays integrated tax first. Any balance may then pay central tax and State or Union territory tax.
• Central tax credit pays central tax first. Any balance may pay integrated tax.
• State or Union territory tax credit pays State or Union territory tax first. Any balance may pay integrated tax, but only where central tax credit is not available for it.
• Central tax credit may not pay State tax, and State tax credit may not pay central tax.

The last rule is the one that strands credit. A business with a surplus of central tax credit and a liability for State tax cannot use the one for the other. The surplus must wait for a future central tax or integrated tax liability.

Rule 88A of the CGST Rules adds an order. Integrated tax credit “shall first be utilised towards payment of integrated tax”, and the remainder may pay central and State tax “in any order”. The proviso requires integrated tax credit to be used up fully before central or State tax credit is used for any tax. Within those limits, the business may choose how to apportion the balance between central and State tax.

The order in which dues are discharged

Section 49(8) sets the order in which payments are applied:

1. self-assessed tax and other dues relating to returns of previous tax periods
2. self-assessed tax and other dues relating to the return of the current tax period
3. any other amount payable, including demands under section 73, 74 or 74A

A payment made for the current month is applied to an earlier month first if that month’s dues are outstanding. Arrears absorb payments before current liabilities do.

The one per cent cash rule

Section 49(12) allows the Government to cap the proportion of output tax that may be paid from the credit ledger. Rule 86B uses that power. Where the value of taxable supplies, other than exempt and zero-rated supplies, exceeds fifty lakh rupees in a month, the credit ledger may not be used “to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability”. At least one per cent must be paid in cash.

The rule has several exceptions:

• the person, or its proprietor, karta, managing director, two partners or other specified office-holders, paid more than one lakh rupees of income tax in each of the last two financial years
• the person received refunds of unutilised credit of more than one lakh rupees in the preceding financial year
• the person has paid more than one per cent of its output tax in cash cumulatively for the year so far
• the person is a Government department, public sector undertaking, local authority or statutory body

The Commissioner may also lift the restriction after verification. From 1 February 2026, a registered person other than a manufacturer is also exempt in respect of goods specified under rule 31D, on which the supplier has paid tax on the basis of retail sale price.

Moving money between ledgers

Cash deposited under the wrong head is not lost. Section 49(10) allows a registered person to transfer “any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger”. It may go to the cash ledger for another tax or for cess, or to the integrated or central tax cash ledger of a distinct person with the same PAN. A transfer to a distinct person is not allowed while there is any unpaid liability in the electronic liability register. The transfer “shall be deemed to be a refund from the electronic cash ledger”.

The credit ledger has no such facility. Credit cannot be moved between taxes except through the utilisation rules above, and cannot be moved to a distinct person.

Balances left in either ledger after all dues are paid may be refunded under section 49(6), “in accordance with the provisions of section 54”.

Interest, and why the ledger matters to it

Interest under section 50 is where the ledgers have direct financial consequences.

Section 50(1) imposes interest on tax not paid by the due date, “at such rate, not exceeding eighteen per cent., as may be notified”. A proviso limits interest on a late return. Where supplies are declared in the return for the right period but the return is filed late, interest is charged only “on that portion of the tax that is paid by debiting the electronic cash ledger”. Tax met from credit carries no interest in that case, because the credit was with the Government throughout. The proviso does not apply where the return is filed after proceedings under section 73, 74 or 74A have begun for the period.

Rule 88B adds a refinement. Cash deposited on or before the due date, and left in the ledger until the late return debits it, is excluded from the interest calculation.

Section 50(3) charges interest on credit “wrongly availed and utilised”, at a rate not exceeding twenty-four per cent. Rule 88B(3) explains when wrongly availed credit is utilised. It is utilised when the balance in the credit ledger falls below the amount wrongly availed, and only to the extent of the shortfall. Credit wrongly taken but left unused in the ledger attracts no interest under this sub-section.

The rates themselves are notified, in Notification No. 13/2017-Central Tax. It fixes eighteen per cent under section 50(1). It originally fixed twenty-four per cent under section 50(3), but the Finance Act, 2022 amended the notification directly. Its Sixth Schedule substitutes “18” for “24”, with effect from 1 July 2017. Both rates are therefore eighteen per cent a year, from the start of GST. The copy of the 2017 notification still published by CBIC shows the original twenty-four per cent.

The passing-on presumption

Section 49(9) contains a provision that matters later, in refunds. Every person who has paid tax on a supply “shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient”. A person who seeks a refund of tax paid must therefore show that it bore the tax itself, not its customer.

Paying a month’s tax

The sequence when filing GSTR-3B is:

1. Check the electronic liability register for arrears. Under section 49(8), they will absorb payment first.
2. Compute output tax by head: integrated, central, State or Union territory, and cess.
3. Apply integrated tax credit first, to integrated tax and then to central and State tax, as rule 88A requires.
4. Apply central tax credit to central tax, then integrated tax. Apply State tax credit to State tax, then integrated tax. Never apply one of them to the other.
5. Pay the balance, reverse charge tax, interest and late fees in cash.
6. If taxable supplies exceed fifty lakh rupees in the month, check rule 86B, and pay at least one per cent of output tax in cash unless an exception applies.
7. Transfer misallocated cash between heads under section 49(10) if needed, before paying.

The next guide covers the annual return and reconciliation statement, which bring the year’s monthly figures together under section 44.