Income Tax

Restrictions on Availment of Input Tax Credit: With Illustration

Government now showing full intention to stop ITC leakages and in order to shove taxpayers to timely file their statement of outward supplies, has come up with imposition of restrictions on availment of input tax credit. This means when a supplier does not file its GSTR-1 then receiver will not be able to get its full Input Tax Credit as the same is not reflecting in GSTR 2A of receiver. ITC will only be allowed to be claimed where outward supplies have been reported by your suppliers. This is an important step to ensure validity of ITC claim in the system.

Notification No. 49/2019-Central Tax Dated: 9th October, 2019

CBIC clarifies on 20 Percent Restriction on ITC Circular No. 123/42/2019– GST 11/11/2019

CBIC has amended the rule no.36 of CGST Rule, 2017 vide by inserting new sub rule 4 which is reproduced as below-

“3. In the said rules, in rule 36, after sub­rule (3), the following sub­rule shall be inserted, namely:-

 “(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub­section (1) of section 37.”

Thus, Maximum ITC that can be claimed in a month= Eligible credit available in GSTR-2A for the month + 20% of the eligible credit available in GSTR-2A for the month. That is to say, Credit can be claimed up to maximum of 120% of the ‘eligible credit’ available in GSTR-2A for the month.

Further, CBIC has clarified the following doubts w.r.t. above insertion of sub rule:-

1. Taxpazyer is requif under sub-section (1) of section 37, shall not exceed 20 per cent.

red to calculate and declare the same on Self-Assessment Basis.

2. Only those Invoices which are required to upload by the Supplier and Credit of the same is availed after 09-10-2019.

3. Also, ITC w.r.t. taxes paid on Imports, RCM, ISD Credit Notes, etc not covered under this rule.

4. The restriction is applied on all the total eligible Credit basise. credit appearing in GSTR- 2A less Input not eligible for credit (i.e. u/s 17(5) of CGST Act)

5. GSTR 2A is to be checked on the date tax liability is calculated

6. The taxpayer can claim pending credit as soon as it is starts reflecting GSTR-2A

Manner to Compute ITC that a Taxpayer can claim

S No. Particulars Month Oct Month Nov
1 Total ITC appearing in GSTR-2A 1,00,000 80,000+ ITC updated by Vendor 30,000
2 Less: Ineligible credit u/s 17(5) 10,000 5,000
3 Total eligible credit (1)-(2) 90,000 105,000
4 20% credit as per Rule 36(4) 18,000 21,000
5 ITC on invoices not uploaded by the supplier 30,000 15,000
Maximum ITC as per rule 36(4) [(3)+ (4) or (5) w.e. lower) 10,8000 120,000
Restricted ITC under rule 36(4) 30,000- 18,000= 12,000 0

Additional burden on Taxpayers

1. Reconciling 2A with books before filing GSTR 3B has become a necessity.

2. Change in business processes with monthly ITC reconciliation and timely communicating the differences to its vendors.

3. Un-necessary blockage of ITC.

4. Taxpayers needs to be cautious about invoices that they are claiming input for.

5. Burden on cashflows of taxpayers.

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