Set off in GST is to adjust the input tax credit(ITC) of GST paid on inputs or input services against the GST liability of outward supplies.
A supplier of goods or services is entitled to take ITC in terms of Section 16 of CGST Act,2017.
To explain further, let us assume that A is into the trading business of cement while B is a manufacturer of cement. A buys cement at a basic price of Rs 200 per bag+ 28% gst on it from B.
Please note that GST on cement is 28% as per Schedule-III of Notification No.1/2017-CT(R) dt 28.6.2017. Thus A would pay Rs 256 (Rs 200+Rs 56 GST) per bag to B including tax.
Assume that A sells the said bag at a basic price of Rs 220, his outward GST liability would be Rs. 61.60 (28% on 220).
A bag of cement would be sold at Rs 281.60(Rs 220+61.60). It means, while discharging his tax liabilty on outward supply of Rs 61.60 GST, A would discharge GST liability of Rs 5.60 in cash payment to the Government after setting off input tax credit of Rs 56 that was paid at the time of buying cement from the cement manufacturer