Electronic Credit Ledger vs Cash Ledger in GST

Every registered person has three ledgers on the GST portal, and almost every payment question resolves into knowing which one an amount sits in. The electronic credit ledger (Form GST PMT-02) holds input tax credit. The electronic cash ledger (Form GST PMT-05) holds money you have actually deposited. The electronic liability register (Form GST PMT-01) holds what you owe. The first two are sources, the third is the destination, and filing GSTR-3B is the event that moves value from the sources to the destination.

The three ledgers every registered person has

The ledgers are generated automatically when registration is granted, and they are visible under Services, then Ledgers, on the portal. They are not accounting conveniences: they are statutory records maintained under section 49 of the CGST Act and the rules that follow it, and the balances they show are what the system treats as true, whatever your own books say.

The electronic credit ledger in Form GST PMT-02 is credited when you claim input tax credit in Table 4 of GSTR-3B, and debited when that credit is used to pay output tax or is debited against a refund claim. Nothing else credits it. You cannot pay money into it, and money paid by challan never lands there. It is held head-wise, so an IGST balance and a CGST balance are genuinely separate pools with different rules about what they can reach. Which credits are eligible to enter it in the first place is governed by the input tax credit rules and by the time limit in section 16(4).

The electronic cash ledger in Form GST PMT-05 is credited when a payment against a PMT-06 challan is successfully realised. It has a finer structure than the credit ledger: each major head — IGST, CGST, SGST/UTGST, cess — is further split into minor heads for tax, interest, penalty, fee and others. Money deposited under CGST-interest is not available to pay CGST-tax until you move it. This two-dimensional split is the single most common source of the complaint that money was paid but the return still would not file.

The electronic liability register in Form GST PMT-01 is the running record of what you owe: liability declared in returns, liability determined by the department in an order, interest and late fee the system computes, and the debits that discharge them. Read top to bottom it tells you exactly what created a demand and what settled it.

How money actually moves when you file

Nothing moves between the ledgers on its own. Depositing money creates a cash-ledger balance and no more. Claiming credit creates a credit-ledger balance and no more. The event that connects the three is the filing of GSTR-3B, and specifically the payment step within it.

The sequence is: your outward supplies in Table 3.1 create the output liability, which is posted to the liability register. Table 4 credits the credit ledger with eligible ITC for the period. At the payment stage the portal proposes a set-off, which you may adjust within the limits of the rules, and on submission it debits the credit ledger and the cash ledger and correspondingly discharges the liability register. Until that final step, all three ledgers can look perfectly healthy while nothing has been paid.

One consequence worth holding on to: because the liability register is where interest and late fee land, and because those can only be met from cash, a return can be blocked by a shortfall of a few hundred rupees in the cash ledger even when the credit ledger is carrying lakhs.

The set-off order under sections 49, 49A and 49B

Section 49(5) sets out the basic order in which each head of credit may be used. Section 49A then overrides it with a priority rule, and section 49B empowers the government to prescribe the order — which it did through Rule 88A. Read together, they produce three rules that govern every set-off:

• IGST credit must be exhausted first. No CGST or SGST credit may be used until the IGST balance has been fully utilised. Within IGST credit, it goes against IGST liability first.
• Leftover IGST credit may go to CGST or SGST in any order and in any proportion. This is the flexibility Rule 88A restored after section 49A had briefly been read as forcing CGST first, and it is the single most useful lever you have.
• CGST credit pays CGST, then IGST. SGST credit pays SGST, then IGST. Cross-utilisation between CGST and SGST is barred in both directions. Cess can only pay cess.

If you are unclear on why the heads exist at all, the split between CGST, SGST and IGST explains which levy applies to which transaction; the set-off rules only make sense once that is clear.

A worked example, including the one that strands credit

Take a month with output liability of ₹30,000 IGST, ₹20,000 CGST and ₹20,000 SGST, against credit of ₹40,000 IGST, ₹15,000 CGST and ₹15,000 SGST. The IGST credit is applied first: ₹30,000 clears the IGST liability entirely, leaving ₹10,000 of IGST credit. That remainder can be split as you like, so ₹5,000 goes to CGST and ₹5,000 to SGST. The CGST and SGST credit of ₹15,000 each then clears the ₹15,000 remaining under each head. Nothing is payable in cash and nothing is left over.

Now change one number. Suppose the same ₹10,000 of leftover IGST credit is applied entirely to CGST because that is what the portal proposed and nobody adjusted it. CGST liability falls to ₹10,000, which the ₹15,000 of CGST credit clears with ₹5,000 to spare. SGST liability stays at ₹20,000 against ₹15,000 of SGST credit, so ₹5,000 must be paid in cash. You have deposited ₹5,000 while ₹5,000 of CGST credit sits unusable, and it will keep sitting there because it can never reach an SGST liability. That is the practical cost of the cross-utilisation bar, and it is entirely avoidable by splitting the leftover IGST credit in proportion to the two liabilities rather than accepting the default.

Where the imbalance is structural rather than a one-month accident — a business making inter-state outward supplies against largely intra-state purchases, say — the surplus accumulates. There is no mechanism to convert it, and it is not refundable unless the business qualifies under section 54(3). The usual responses are to steer the IGST split deliberately every month, to review whether procurement is being sourced in a way that keeps the two heads roughly in step, and to accept the balance as a long-term asset that will unwind slowly as the mix changes.

What only the cash ledger can pay

Section 49(4) confines the credit ledger to payment of output tax. Everything else comes from cash: interest under section 50, late fee, penalty, and any fee payable under the Act. Reverse charge liability is in the same position — you pay it in cash first and may claim the credit afterwards, which is why it never nets off. Our guide to GST late fee and interest covers how those amounts are computed; the point here is simply that they are cash-only, without exception.

There is a related relief worth knowing. Interest on tax declared late in a return is, under the proviso to section 50(1), computed on the portion of the liability discharged by debiting the cash ledger, not on the gross tax. A business filing late while carrying a large credit balance therefore pays interest on a much smaller base than the headline liability suggests. Confirm the current position and the notified rate before relying on a computation.

Rule 86B and Rule 86A: capped and blocked credit

Rule 86B — a cap on how much credit can discharge

Rule 86B applies to registered persons whose value of taxable supply in a month, excluding exempt and zero-rated supply, exceeds a prescribed monthly threshold. For those taxpayers, no more than 99 per cent of the output tax liability for the month may be discharged from the electronic credit ledger; at least one per cent must come from the cash ledger. The rule was introduced to make purely paper-based supply chains expensive to operate, because an entity passing on fabricated credit has to fund real cash to do it.

The rule carries exceptions, and most genuine businesses of that size fall into one of them. Broadly, the cap does not apply where the registered person or specified office holders have paid income tax above a specified amount in each of the two preceding financial years; where the person has received a refund above a specified amount on account of unutilised credit from zero-rated supplies or an inverted duty structure; where cash payments already exceed one per cent of cumulative output liability in the current year; or where the registered person is a government department, public sector undertaking, local authority or statutory body. Verify both the turnover threshold and the monetary figures in the exceptions against the current text of the rule before concluding you are outside it.

Rule 86A — blocking the ledger outright

Rule 86A is a different instrument. Where a commissioner, or an officer authorised by him not below the rank of Assistant Commissioner, has reasons to believe that credit in the ledger was fraudulently availed or is ineligible — credit from a supplier found to be non-existent, or against invoices with no underlying supply — he may disallow debit of that amount. The balance still shows, but it cannot be used.

The practical effect is severe. You cannot discharge output tax from the blocked amount, so you either wait for the block to be lifted or pay the entire liability in cash to keep filing. Two safeguards matter. First, a Rule 86A restriction ceases to have effect on expiry of one year from the date it was imposed. Second, departmental guidelines require the officer to record reasons and to apply the restriction on the basis of material evidence rather than suspicion.

Early use of the rule produced a curious problem: officers blocked amounts larger than the balance actually in the ledger, leaving taxpayers with a negative balance that had to be made good before any credit could be used again. The clarified position is that the amount blocked cannot exceed the balance available, and the negative balances created under the earlier practice were subsequently restored on the portal.

Moving cash with PMT-09, and between your own GSTINs

Money misallocated on a challan used to require a refund claim. Form GST PMT-09 replaced that. It transfers an unutilised amount in the cash ledger from one head to another — across major heads, so CGST to IGST, or within a major head across minor heads, so penalty to tax. The filing is instant, needs no officer approval, and the ledger updates immediately.

Its limits are worth stating plainly. PMT-09 moves cash only: it cannot touch the credit ledger, cannot convert credit into cash, and cannot recall an amount already used to discharge a liability in a filed return. It works on what is still unutilised, nothing more.

The same form also handles a second, less familiar transfer. An unutilised cash balance can be moved from one GSTIN to another GSTIN registered on the same PAN — distinct persons under section 25 — so a group that over-funded one state registration can redeploy the money rather than claiming a refund and waiting. The transfer is available only where the transferor has no unpaid liability in its own liability register, and the amount received by the transferee cannot be transferred onward again.

Refunds, and reconciling the ledgers each month

An unutilised balance in the cash ledger is your money and can be claimed back through RFD-01 under the excess-balance-in-cash-ledger category. It is one of the simpler refunds, since the amount is visible in the ledger and needs no computation, though it is still subject to the general minimum-claim threshold and to the usual bank account validation. The full mechanics are in our GST refund process guide.

A credit-ledger balance is a different matter. Section 54(3) permits refund of unutilised input tax credit in only two situations: zero-rated supplies made without payment of tax, and an inverted duty structure where the rate on inputs exceeds the rate on outputs. Outside those, accumulated credit is carried forward indefinitely and never converted to cash. This is the asymmetry that makes the CGST and SGST stranding problem permanent rather than merely inconvenient.

Reconciling the ledgers monthly is a small discipline that prevents most of the surprises above. Compare the closing credit-ledger balance against the ITC ledger in your books, and the difference against what GSTR-2B made available for the period. Compare the cash ledger head by head and minor head by minor head against your challan register, so that misallocated deposits surface before they block a filing. Read the liability register from the top for the period to confirm that every entry has a matching discharge. Download all three as at the last day of the month and keep them with the return: when a notice arrives two years later asking why credit was utilised in a particular way, that saved statement is the answer.

Frequently asked questions