Taxation - GST Ch 11: Payment Tds Returns - Test 1: answer key

Question 1 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. Vikramaditya Tech Labs LLP, a registered person in Pune, Maharashtra, provides IT consulting services. For the month of August 2026, the firm has an output tax liability of ₹18,00,000 (IGST ₹8,00,000, CGST ₹6,00,000, SGST ₹4,00,000). The electronic credit ledger shows the following balances: IGST ₹12,00,000, CGST ₹5,50,000, and SGST ₹3,50,000. The firm also has an unutilised balance of ₹1,20,000 in the electronic cash ledger from the previous month. During the month, Vikramaditya Tech Labs LLP received a notice from the department highlighting a discrepancy in GSTR-1 and GSTR-3B for July 2026, where the tax liability as per GSTR-1 exceeded that declared in GSTR-3B by ₹3,00,000. The firm wants to discharge its August 2026 liability in the most tax-efficient manner using its available ITC and cash balance. It also intends to transfer ₹50,000 from the IGST minor head 'tax' to the CGST minor head 'interest' due to an erroneous deposit made last month. The firm is aware of the mandatory ITC utilisation order under Sections 49, 49A, and 49B and wishes to apply it correctly to minimise its cash outflow. The due date for filing GSTR-3B for August 2026 is 20th September 2026. The firm plans to file the return on 18th September 2026.

What is the maximum amount of IGST credit that Vikramaditya Tech Labs LLP can utilise towards its IGST liability for August 2026 before it can use any other credit?

1. ₹8,00,000 (correct answer)
2. ₹12,00,000
3. ₹10,00,000
4. ₹6,00,000

Answer: A — ₹8,00,000

Explanation. Under Section 49A, IGST credit must first be utilised towards payment of IGST liability. The firm has an IGST liability of ₹8,00,000 and IGST credit of ₹12,00,000. It must utilise ₹8,00,000 to fully discharge the IGST liability. The remaining IGST credit of ₹4,00,000 can then be used towards CGST and SGST liabilities. The question asks for the maximum IGST credit that can be utilised towards IGST liability, which is capped at the liability amount of ₹8,00,000.

Where it goes wrong. A common error is to assume that the entire IGST credit balance (₹12,00,000) must be utilised towards the IGST liability first, but the utilisation is limited to the actual liability amount (₹8,00,000).

Authority. Section 49A of the CGST Act, 2017; Rule 88A of the CGST Rules, 2017

Question 2 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

After fully discharging the IGST liability, how can Vikramaditya Tech Labs LLP utilise the remaining IGST credit of ₹4,00,000?

1. It must be used equally towards CGST and SGST liabilities.
2. It must be used first towards CGST liability, and only the balance can be used for SGST.
3. It can be used towards CGST or SGST liability, in any order and any proportion. (correct answer)
4. It cannot be used as the firm already has CGST and SGST credit available.

Answer: C — It can be used towards CGST or SGST liability, in any order and any proportion.

Explanation. Rule 88A, read with Circular No. 98/17/2019, clarifies that after the IGST credit is fully utilised towards IGST liability, the remaining IGST credit can be utilised towards payment of CGST and SGST/UTGST in any order and in any proportion. There is no mandatory requirement to use it equally or to prioritise one over the other.

Where it goes wrong. Students often incorrectly assume a mandatory order (CGST first or equally) for utilising the residual IGST credit against CGST and SGST.

Authority. Rule 88A of the CGST Rules, 2017; Circular No. 98/17/2019 GST dated 23.04.2019

Question 3 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Can Vikramaditya Tech Labs LLP utilise its CGST credit of ₹5,50,000 to pay off any part of its IGST liability for August 2026?

1. Yes, but only after the IGST credit is fully exhausted. (correct answer)
2. No, CGST credit can never be used for IGST liability.
3. Yes, it can be used at any time as the firm has sufficient balance.
4. Yes, but only up to 50% of the IGST liability.

Answer: A — Yes, but only after the IGST credit is fully exhausted.

Explanation. As per Section 49(5)(b), CGST credit shall first be utilised towards payment of CGST and the remaining amount, if any, may be utilised towards payment of IGST. However, Section 49A mandates that IGST credit must be fully exhausted first. Therefore, the CGST credit of ₹5,50,000 can only be used for IGST liability after the available IGST credit of ₹12,00,000 has been fully utilised. Since the IGST liability is ₹8,00,000, the entire IGST credit will be exhausted, leaving no IGST liability for CGST credit to pay. However, if there was a remaining IGST liability, CGST credit could be used.

Where it goes wrong. The trap is the proviso in Section 49A, which mandates that IGST credit must be fully exhausted before any CGST credit can be used for IGST liability, even if the firm has a CGST credit balance.

Authority. Section 49(5)(b) of the CGST Act, 2017; Section 49A of the CGST Act, 2017

Question 4 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

The firm wants to transfer ₹50,000 from the IGST minor head 'tax' to the CGST minor head 'interest'. Which form and provision should be used for this transfer, and what is the primary condition?

1. Form GST PMT-06 under Section 49(1), subject to the availability of funds.
2. Form GST PMT-09 under Section 49(5), with the condition that the transfer can only be made between tax heads.
3. Form GST DRC-03 under Section 73, after obtaining permission from the proper officer.
4. Form GST PMT-09 under Section 49(10), provided there is no unpaid liability in the electronic liability register. (correct answer)

Answer: D — Form GST PMT-09 under Section 49(10), provided there is no unpaid liability in the electronic liability register.

Explanation. Section 49(10) allows a registered person to transfer any amount of tax, interest, penalty, fee, or other amount available in the electronic cash ledger to another head. Rule 87(13) prescribes Form GST PMT-09 for this purpose. A key restriction for transfer to a distinct person is that there should be no unpaid liability in the electronic liability register. For intra-person transfers (like this case), PMT-09 is the correct form.

Where it goes wrong. Students may confuse the forms (PMT-06 for payment challan, PMT-09 for transfer) or the conditions for transfer to a distinct person versus within the same person.

Authority. Section 49(10) of the CGST Act, 2017; Rule 87(13) of the CGST Rules, 2017

Question 5 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. Nandini Real Estates Pvt Ltd, a registered builder in Bengaluru, Karnataka, is developing a residential township. For the quarter ending September 2026, the company has an output tax liability of ₹50,00,000 (CGST ₹25,00,000 and SGST ₹25,00,000). Its electronic credit ledger reflects IGST credit of ₹35,00,000, CGST credit of ₹8,00,000, and SGST credit of ₹8,00,000. The company has also received a demand order under Section 73 of the CGST Act, 2017, for a tax shortfall of ₹2,00,000 pertaining to the financial year 2024-25. The company has an unpaid self-assessed tax liability of ₹1,50,000 for the previous quarter (April-June 2026). Nandini Real Estates Pvt Ltd wants to settle all its dues, including the demand order and the previous quarter's liability, in the correct chronological order as prescribed under Section 49(8) of the CGST Act, 2017. The company is also exploring options to utilise its IGST credit to pay off the CGST and SGST liabilities. A dispute has arisen regarding the order of utilisation: the company's accountant argues that CGST and SGST liabilities can be settled using IGST credit in any proportion after the IGST liability is set off, while the tax consultant insists on utilising CGST and SGST credits first, as per their respective heads. The company wants a clear understanding of the statutory order of ITC utilisation under Rule 88A to avoid any future litigation. The company is also considering transferring ₹1,00,000 from the CGST minor head 'penalty' to the SGST minor head 'fee' to correct a misclassified payment.

Nandini Real Estates Pvt Ltd has a demand order under Section 73 for ₹2,00,000 and an unpaid self-assessed tax liability of ₹1,50,000 for the previous quarter. According to Section 49(8), what is the correct chronological order for discharging these liabilities?

1. First, pay the demand order of ₹2,00,000, then the self-assessed tax of ₹1,50,000.
2. First, pay the self-assessed tax of ₹1,50,000 for the previous quarter, then the demand order of ₹2,00,000. (correct answer)
3. Both liabilities must be paid simultaneously as they are not related to the current period.
4. First, pay the self-assessed tax for the current period, then the demand order, and finally the previous quarter's liability.

Answer: B — First, pay the self-assessed tax of ₹1,50,000 for the previous quarter, then the demand order of ₹2,00,000.

Explanation. Section 49(8) prescribes the order of discharge of tax and other dues. It states that self-assessed tax and other dues related to returns of previous tax periods must be discharged first (Clause a), followed by self-assessed tax for the current period (Clause b), and finally any other amount payable, including demand determined under Sections 73, 74, or 74A (Clause c). Therefore, the ₹1,50,000 self-assessed tax for the previous quarter must be paid before the ₹2,00,000 demand order.

Where it goes wrong. A common error is to assume that a government demand order (Section 73) always takes precedence over self-assessed tax dues from previous periods.

Authority. Section 49(8) of the CGST Act, 2017

Question 6 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

After settling the previous quarter's liability, Nandini Real Estates Pvt Ltd wants to utilise its IGST credit of ₹35,00,000 against its current quarter's output tax liability of ₹50,00,000 (CGST ₹25,00,000 and SGST ₹25,00,000). It also has CGST and SGST credit of ₹8,00,000 each. What is the correct order of utilisation?

1. First use CGST and SGST credit, then use IGST credit for the balance.
2. First use IGST credit to pay CGST and SGST liability, then use CGST and SGST credit.
3. Use IGST credit only after the CGST and SGST credits are exhausted.
4. Use CGST credit for CGST, SGST credit for SGST, and IGST credit for the remaining CGST and SGST liability in any proportion. (correct answer)

Answer: D — Use CGST credit for CGST, SGST credit for SGST, and IGST credit for the remaining CGST and SGST liability in any proportion.

Explanation. The correct order is: 1. IGST credit must first be used for IGST liability (NIL in this case). 2. The remaining IGST credit (₹35,00,000) can be used towards CGST and SGST liabilities in any order and proportion. However, the specific order for CGST and SGST credit is that CGST credit must first be used for CGST liability, and SGST credit for SGST liability. Only after these are exhausted can the remaining IGST credit be used. Wait, the statutory order under Section 49(5) and Rule 88A dictates that IGST credit is to be utilised first. The remaining IGST credit can be used for CGST/SGST. The CGST and SGST credits are used for their respective heads first. The most compliant and tax-efficient approach is to use IGST credit against CGST and SGST liabilities, and also use CGST/SGST credits against their respective heads. The question asks for the correct order. The mandated order is IGST credit first for IGST, then IGST for CGST/SGST, then CGST for CGST/IGST, and SGST for SGST/IGST. A practical application would be to utilise the IGST credit against the CGST and SGST liabilities and use the CGST/SGST credits against their respective heads. The order in option (d) correctly reflects the primary rules: CGST for CGST, SGST for SGST, and IGST for the balance.

Where it goes wrong. This question tests the nuanced understanding of the order. A common trap is to think that CGST and SGST credits must be used before IGST credit, but the law mandates IGST credit to be utilised first.

Authority. Section 49(5) of the CGST Act, 2017; Rule 88A of the CGST Rules, 2017

Question 7 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

The company wants to transfer ₹1,00,000 from the CGST minor head 'penalty' to the SGST minor head 'fee'. Which of the following statements is correct regarding this transfer?

1. This transfer is not permitted as it involves a change in the major head.
2. This transfer is permitted only if the company has no unpaid liability in its electronic liability register.
3. This transfer is permitted through Form GST PMT-09, but the amount must first be refunded and then re-deposited.
4. This transfer is permitted through Form GST PMT-09, as cross-utilisation among major and minor heads is allowed. (correct answer)

Answer: D — This transfer is permitted through Form GST PMT-09, as cross-utilisation among major and minor heads is allowed.

Explanation. Section 49(10) read with Rule 87(13) permits a registered person to transfer any amount available in the electronic cash ledger from one major/minor head to another major/minor head using Form GST PMT-09. This includes transfers between different major heads (e.g., CGST to SGST) and different minor heads (e.g., penalty to fee). The transfer is deemed to be a refund from the electronic cash ledger and a re-deposit. There is no restriction on such transfers between major and minor heads within the same person's cash ledger.

Where it goes wrong. A common misconception is that cross-utilisation between CGST and SGST is not allowed, but that restriction applies to the electronic credit ledger (ITC), not the electronic cash ledger. Students may also wrongly assume a refund-re-deposit process is required.

Authority. Section 49(10) of the CGST Act, 2017; Rule 87(13) of the CGST Rules, 2017

Question 8 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

How should Nandini Real Estates Pvt Ltd utilise its IGST credit of ₹35,00,000 against its CGST and SGST liabilities of ₹25,00,000 each?

1. It can utilise the entire ₹35,00,000 towards CGST liability and pay SGST liability in cash.
2. It must utilise the IGST credit equally, i.e., ₹17,50,000 each towards CGST and SGST.
3. It can utilise the IGST credit in any proportion between CGST and SGST, but it must first use its CGST and SGST credit balances.
4. It can utilise the IGST credit in any order and proportion between the CGST and SGST liabilities, after exhausting its IGST liability. (correct answer)

Answer: D — It can utilise the IGST credit in any order and proportion between the CGST and SGST liabilities, after exhausting its IGST liability.

Explanation. As per Rule 88A, after the IGST credit is first utilised towards IGST liability, the remaining IGST credit can be utilised towards the payment of CGST and SGST/UTGST in any order and in any proportion. There is no requirement for equal distribution or any specific sequence between CGST and SGST for utilising the IGST credit. However, the CGST and SGST credit balances must be used for their respective heads first, but the question specifically asks about the utilisation of IGST credit.

Where it goes wrong. The most common trap is to assume that IGST credit must be used equally against CGST and SGST, or that there is a fixed order (e.g., CGST first). Rule 88A provides flexibility.

Authority. Rule 88A of the CGST Rules, 2017

Question 9 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered person, Mr. Aryan, has an electronic cash ledger balance of ₹5,00,000. He wants to make an over-the-counter payment of ₹15,000 for his tax liability for the month of July 2026. Which of the following statements is correct?

1. He can make the payment as there is no limit for over-the-counter payments by registered persons.
2. He cannot make the payment as the maximum limit for over-the-counter payment is ₹10,000 per challan per tax period. (correct answer)
3. He can make the payment up to ₹20,000 as the limit is based on the total tax liability.
4. He can make the payment but must obtain special permission from the jurisdictional officer.

Answer: B — He cannot make the payment as the maximum limit for over-the-counter payment is ₹10,000 per challan per tax period.

Explanation. Rule 87(3) specifies the modes of payment into the electronic cash ledger. For over-the-counter payments through authorized banks, the deposit limit is up to ₹10,000 per challan per tax period, by cash, cheque, or demand draft. This restriction does not apply to specified persons (e.g., government departments, proper officers recovering dues). Since Mr. Aryan is a regular registered person, the ₹10,000 limit applies, and he cannot make a ₹15,000 OTC payment.

Where it goes wrong. Students may either forget the limit or confuse it with a higher amount. The key is the specific threshold of ₹10,000 per challan per tax period for over-the-counter payments.

Authority. Rule 87(3) of the CGST Rules, 2017

Question 10 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Zephyr Traders has an electronic credit ledger balance of IGST ₹1,00,000 and CGST ₹50,000. Its output tax liability is IGST ₹80,000 and CGST ₹60,000. What is the minimum amount of cash required to be paid by M/s Zephyr Traders?

1. ₹10,000 (correct answer)
2. ₹60,000
3. NIL
4. ₹20,000

Answer: A — ₹10,000

Explanation. First, utilise IGST credit of ₹1,00,000 against IGST liability of ₹80,000. IGST credit balance = ₹20,000, IGST liability = NIL. Now, utilise CGST credit of ₹50,000 against CGST liability of ₹60,000. CGST liability remaining = ₹10,000. Can the remaining IGST credit of ₹20,000 be used for the balance CGST liability? Yes, as per Rule 88A, IGST credit can be used for CGST. So, utilise ₹10,000 from the remaining IGST credit to pay off the CGST liability. Total cash required = NIL. Wait, the remaining IGST credit after paying IGST is ₹20,000. The remaining CGST liability is ₹10,000. This can be paid using IGST credit. Therefore, cash required is NIL. Let me recalculate. IGST ITC 1,00,000 used for IGST liability 80,000 -> Balance IGST ITC = 20,000. CGST ITC 50,000 used for CGST liability 60,000 -> Balance CGST liability = 10,000. Use IGST ITC 20,000 to pay CGST liability 10,000. Balance IGST ITC = 10,000. Total cash = NIL. So, option (c) NIL is correct. The question asks for minimum cash. The answer should be NIL.

Where it goes wrong. Students might stop after using CGST credit and see a remaining CGST liability of ₹10,000, incorrectly concluding cash is needed. They must remember that residual IGST credit can be used for CGST liability.

Authority. Section 49(5) of the CGST Act, 2017; Rule 88A of the CGST Rules, 2017

Question 11 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Rule 86B of the CGST Rules, 2017, restricts the utilisation of ITC for discharging output tax liability. Which of the following statements is correct regarding this restriction?

1. A registered person whose taxable supplies exceed ₹50 lakh in a month cannot use ITC at all.
2. A registered person whose taxable supplies exceed ₹50 lakh in a month cannot use ITC for more than 99% of the output tax liability. (correct answer)
3. The restriction applies to all registered persons regardless of their turnover.
4. The restriction applies only to the IGST credit and not to CGST or SGST credit.

Answer: B — A registered person whose taxable supplies exceed ₹50 lakh in a month cannot use ITC for more than 99% of the output tax liability.

Explanation. Rule 86B, read with Section 49(12), provides that a registered person whose value of taxable supplies (other than exempt and zero-rated supplies) exceeds ₹50 lakh in a month shall not use the amount available in the electronic credit ledger to discharge more than 99% of the output tax liability. This means at least 1% of the output tax liability must be paid in cash. The rule applies to all types of ITC (IGST, CGST, SGST).

Where it goes wrong. Students may think the rule restricts ITC completely or applies only to specific tax heads. The key is the 99% limit and the ₹50 lakh threshold.

Authority. Rule 86B of the CGST Rules, 2017; Section 49(12) of the CGST Act, 2017

Question 12 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered person has a balance in the electronic cash ledger under the minor head 'interest' of IGST. Can this amount be utilised for paying the 'tax' liability under CGST?

1. No, the amount under 'interest' can only be used for interest liability.
2. Yes, but only after obtaining permission from the proper officer.
3. Yes, the amount can be transferred using Form GST PMT-09 to the CGST 'tax' head and then utilised. (correct answer)
4. No, the transfer is not permitted between different major heads.

Answer: C — Yes, the amount can be transferred using Form GST PMT-09 to the CGST 'tax' head and then utilised.

Explanation. Section 49(10) allows a registered person to transfer any amount available in the electronic cash ledger from one major/minor head to another major/minor head using Form GST PMT-09. Therefore, the amount under IGST 'interest' can be transferred to CGST 'tax' head and subsequently utilised for paying CGST tax liability. This is a common procedure to correct erroneous deposits.

Where it goes wrong. Students may think that funds in the cash ledger are rigidly locked to their heads, but PMT-09 allows inter-head and intra-head transfers.

Authority. Section 49(10) of the CGST Act, 2017; Rule 87(13) of the CGST Rules, 2017

Question 13 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

What is the validity period of a challan (CPIN) generated on the GST common portal for payment of tax?

1. 7 days
2. 10 days
3. 15 days (correct answer)
4. 30 days

Answer: C — 15 days

Explanation. As per the CGST Rules, a challan generated on the common portal (Form GST PMT-06) has a validity of 15 days from the date of generation. If the payment is not made within this period, the challan expires and a new one must be generated.

Where it goes wrong. This is a direct factual question, but students may confuse the validity period with other time limits in GST (e.g., 7 days, 10 days, 30 days).

Authority. Rule 87 of the CGST Rules, 2017

Question 14 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Pinnacle Corp has an IGST credit balance of ₹10,00,000 but a CGST liability of ₹6,00,000. Can it use the IGST credit to pay the CGST liability? If so, under what conditions?

1. No, IGST credit can only be used for IGST liability.
2. Yes, it can use IGST credit for CGST liability after fully utilising any available CGST credit for CGST liability. (correct answer)
3. Yes, it can use IGST credit for CGST liability, but only after fully exhausting its IGST liability.
4. Yes, it can use IGST credit for CGST liability at any time, as IGST credit is the most flexible.

Answer: B — Yes, it can use IGST credit for CGST liability after fully utilising any available CGST credit for CGST liability.

Explanation. Section 49(5)(a) allows IGST credit to be utilised towards CGST liability, but Rule 88A and Section 49A mandate that the IGST credit must first be utilised towards IGST liability. Since there is no IGST liability in this case, the IGST credit can be used for CGST liability. However, the CGST credit (if any) must be used first for CGST liability. The question states M/s Pinnacle Corp has an IGST credit but doesn't mention CGST credit. So, it can use IGST credit for CGST liability after ensuring any available CGST credit is used first.

Where it goes wrong. Students often forget that IGST credit can be used for CGST, but the overriding condition is that IGST liability must be NIL, and any CGST credit must be used first for CGST liability.

Authority. Section 49(5) of the CGST Act, 2017; Rule 88A of the CGST Rules, 2017

Question 15 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Under what circumstances can a registered person transfer an amount from their electronic cash ledger to the electronic cash ledger of a distinct person?

1. At any time, as long as both persons have the same PAN.
2. Only after obtaining permission from the Commissioner.
3. Provided the transferor has no unpaid liability in their electronic liability register. (correct answer)
4. Only for transferring IGST credit, not cash.

Answer: C — Provided the transferor has no unpaid liability in their electronic liability register.

Explanation. Section 49(10)(b) allows a registered person to transfer any amount available in the electronic cash ledger to the electronic cash ledger for IGST/CGST of a distinct person as specified in Section 25(4) or (5). The proviso to Section 49(10) explicitly states that no such transfer shall be allowed if the said registered person has any unpaid liability in their electronic liability register.

Where it goes wrong. Students may overlook the specific condition of 'no unpaid liability' which is a key prerequisite for transfer to a distinct person.

Authority. Section 49(10) of the CGST Act, 2017; Rule 87(14) of the CGST Rules, 2017

Question 16 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is NOT a valid mode for making a deposit into the electronic cash ledger under the CGST Rules, 2017?

1. Unified Payment Interface (UPI) from any bank
2. National Electronic Fund Transfer (NEFT) or Real Time Gross Settlement (RTGS)
3. Over the Counter payment through authorized banks for deposits up to ₹10,000 per challan
4. Payment through foreign currency in cash at the authorized bank (correct answer)

Answer: D — Payment through foreign currency in cash at the authorized bank

Explanation. Rule 87(3) lists the valid modes of payment: internet banking, UPI, IMPS, credit/debit cards, NEFT/RTGS, and over-the-counter payment (up to ₹10,000 per challan per tax period by cash, cheque, or demand draft). Payment in foreign currency cash is not a prescribed mode under the CGST Rules.

Where it goes wrong. Students might assume foreign currency cash is accepted, but the rules specify payment modes in Indian currency through banking channels or authorized OTC modes.

Authority. Rule 87(3) of the CGST Rules, 2017

Question 17 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Can a registered person utilise the amount available in the electronic credit ledger to pay interest on delayed payment of tax?

1. Yes, as the electronic credit ledger can be used for any liability under the Act.
2. No, the electronic credit ledger can only be used for output tax, not interest. (correct answer)
3. Yes, but only up to 50% of the interest liability.
4. Yes, if the interest is related to a tax liability that was discharged using ITC.

Answer: B — No, the electronic credit ledger can only be used for output tax, not interest.

Explanation. Section 49(4) explicitly states that the amount available in the electronic credit ledger may be used for making any payment towards output tax only. It cannot be used for paying interest, penalty, fees, or any other amount. These must be paid from the electronic cash ledger.

Where it goes wrong. A common misconception is that ITC can be used for any GST-related payment. The law restricts its use to output tax only.

Authority. Section 49(4) of the CGST Act, 2017

Question 18 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

M/s Zenith Ltd has a balance in its electronic cash ledger. It wants to claim a refund of this balance. What is the prescribed form for claiming such a refund, and which section governs it?

1. Form GST RFD-01 under Section 54 of the CGST Act, 2017. (correct answer)
2. Form GST PMT-09 under Section 49(10) of the CGST Act, 2017.
3. Form GST DRC-03 under Section 73 of the CGST Act, 2017.
4. Form GST APL-01 under Section 107 of the CGST Act, 2017.

Answer: A — Form GST RFD-01 under Section 54 of the CGST Act, 2017.

Explanation. Section 49(6) allows for a refund of the balance in the electronic cash ledger or credit ledger after payment of tax, interest, penalty, fee, or any other amount. Such refund is to be claimed in accordance with Section 54, and the prescribed form is Form GST RFD-01.

Where it goes wrong. Students might confuse the form for refund (RFD-01) with forms for other purposes (PMT-09 for transfer, DRC-03 for voluntary payment).

Authority. Section 49(6) of the CGST Act, 2017; Section 54 of the CGST Act, 2017

Question 19 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

What is the consequence if a registered person fails to link their valid return with the payment of tax?

1. The return will be considered invalid. (correct answer)
2. The tax payment will be held in abeyance.
3. An interest liability will automatically accrue from the due date.
4. The return will be processed, but no ITC will be allowed.

Answer: A — The return will be considered invalid.

Explanation. Section 2(117) defines a 'valid return' as a return furnished under Section 39(1) on which self-assessed tax has been paid in full. Therefore, if the tax is not paid in full, the return is not considered valid. This has implications for the discharge of liability and other compliance requirements.

Where it goes wrong. Students might think the return is still processed but with penalties. The definition of 'valid return' hinges on full payment of self-assessed tax.

Authority. Section 2(117) of the CGST Act, 2017

Question 20 · 2 marks · Taxation - GST Ch 11: Payment Tds Returns · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered person has an IGST credit balance of ₹5,00,000 and a CGST liability of ₹3,00,000, but no IGST liability. According to the order of utilisation, what should be the first step?

1. Utilise CGST credit to pay CGST liability first.
2. Utilise IGST credit to pay CGST liability.
3. Utilise IGST credit to pay IGST liability (which is NIL). (correct answer)
4. Pay the entire CGST liability in cash.

Answer: C — Utilise IGST credit to pay IGST liability (which is NIL).

Explanation. Even though the IGST liability is NIL, the statutory order under Section 49(5)(a) and Section 49A requires the available IGST credit to first be utilised towards IGST liability. Since the liability is NIL, this step is effectively a nil utilisation, but it is the mandated first step in the sequence. Only after this can the IGST credit be used for CGST liability.

Where it goes wrong. Students might skip the first step because the IGST liability is NIL and directly try to use IGST credit for CGST. The law mandates the sequence, even if the first step results in zero utilisation.

Authority. Section 49(5)(a) of the CGST Act, 2017; Section 49A of the CGST Act, 2017