A fine-tune in the rule on availing GST credits may create cash flow problems for some companies starting this month. The change is in the way companies can set off tax paid on raw material against those levied on the goods they sell, which is meant to avoid double counting of taxes.

According to the new credit utilization mechanism, companies can set off their tax liabilities by first utilizing their integrated GST credits before availing of their central GST and state GST (SGST) credits. Previously, companies could set off IGST credits against both CGST and SGST.

This has started to result in situations where companies end up paying GST in cash even though they have credits in their books. This amendment has become a point of worry for most industry players as they may now have to pay SGST liability in cash even in scenarios where prior to this amendment, these could be paid by utilizing credits.

IGST credits are accumulated by companies that import goods or source them from vendors in other states. Collections under IGST are shared between the central and the state governments. Tax experts said the regulation change could result in litigation.