New restriction of 20% on Input tax credit under GST
The CBIC has notified the Central Goods and Services Tax (Sixth Amendment) Rules, 2019 vide Notification No. 49/2019 – Central Tax dated 09-10-2019. The said Notification has also revamped the entire method of availing credit, by inserting a new rule.
What are the present conditions to claim Input tax credit ?
Below are existing conditions for claiming Input tax credit:
- Possession of Tax invoice or debit note issued by supplier
- Receipt of Goods or services
- GST on supply has to be paid by supplier
- Has to file GSTR 3B
What does the new rule says?
"Input tax credit to be availed by a registered person in respect of invoices the details of which are not appearing in GSTR 2A shall not exceed 20 per cent. of the eligible credit available in respect of invoices which have been uploaded by the suppliers in GSTR 2A."
In simple words, a registered person can claim inputs related to the invoices which are not appearing in GSTR 2A is 20% of the inputs of invoices which are appearing in GSTR 2A.
Mr.A has received 50 invoices (Purchase of Rs. 5,00,000) having input of Rs.50,000 from various suppliers in the month of Oct 2019.
|30 invoices of suppliers involving ITC of Rs.25,000 are appearing in the GSTR 2A of Registered person||Rs 25,000|
|20 % of inputs of invoices which are appearing in GSTR 2A||Rs. 5,000 (20% of 25,000)|
|Total Input that can be claimed in GSTR-3B of Nov Month||Rs. 30,000|
|Input that could have been claimed as per previous rules in the above example||Rs. 50,000|
|Input that can be claimed as per new rules in the above example||Rs. 30,000|
FAQ’s on new rule
1. Whether the eligible input that can be claimed will be calculated by the portal or it is self assessed?
A: This being a new provision, the restriction is not imposed through the common portal and it is the responsibility of the taxpayer that credit is availed in terms of the said rule.
2. What are the invoices /debit notes on which the new restriction shall not apply?
A: The restriction of availment of ITC is imposed only in respect of those invoices /debit notes, details of which are required to be uploaded by the suppliers in GSTR1
Therefore, taxpayers may avail full ITC in respect of
- IGST paid on import
- Documents issued under RCM,
- Credit received from ISD
3. Whether the said restriction is to be calculated supplier wise or on consolidated basis?
A: The restriction imposed is not supplier wise. The credit that can be claimed is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. So it has to be calculated on consolidated basis.
4.Whether Calculation to be made is exclusive or inclusive of Blocked Credits and ineligible credits ?
A: The calculation would be based on only those invoices which are eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision would not be considered for calculating 20 per cent. of the eligible credit available.
5. How much ITC a registered tax payer can avail in his FORM GSTR-3B in a month ?
A: The eligible ITC that can be availed is explained by way of illustrations, in a tabulated form, below.
Example : Mr. A has made a purchase of Rs. 10 Lakhs by receiving 100 invoices involving ITC of Rs.1 Lakh.
80 invoices involving ITC of Rs. 7 Lakhs are appearing in GSTR 2A on due date of filling GSTR 1
|ITC on 80 invoices appearing in GSTR 2A||Rs. 7,00,000|
|20 % of inputs of invoices which are appearing in GSTR 2A||Rs. 1,40,000 (20% of 7,00,000)|
|Total (a)||Rs. 8,40,000|
|Total inputs available for the month (b)||Rs. 10,00,000|
|Total Input that can be claimed in GSTR-3B of Nov Month – Lower of (a) and (b)||Rs. 8,40,000|
90 invoices involving ITC of Rs. 8.5 Lakhs are appearing in GSTR 2A on due date of filling GSTR 1
|ITC on 90 invoices appearing in GSTR 2A||Rs. 8,50,000|
|20 % of inputs of invoices which are appearing in GSTR 2A||Rs. 1,70,000 (20% of 8,50,000)|
|Total (a)||Rs. 10,20,000|
|Total inputs available for the month (b)||Rs. 10,00,000|
|Total Input that can be claimed in GSTR-3B of Nov Month – Lower of (a) and (b)||Rs. 10,00,000|
6. When can balance ITC be claimed in case availment of ITC is restricted as per the new rule ?
A: The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers
7. Is it necessary to do invoice-wise GSTR 2A and Books reconcilations every month ?
A: A:Ideally, a registered person is required to do monthly GSTR 2A reconciliation with books to have track of invoices which are not uploaded in GSTR 1 by the suppliers.
But it will not be required to do the same in all cases.
As per new rule, the ITC that can claimed on invoices not appearing in GSTR 2A should not exceed 20% of the invoices appearing in GSTR 2A.
So if 83.33 % (100/1.20) of total eligible inputs available is appearing in GSTR 2A then taxpayer can claim 100% ITC and there will be no need to do GSTR 2A reconciliation.
Conclusion: The taxpayer may resort below flow chart to be not get affected by the new rule
The new rule will be having an impact on the cash flow of the entity and consumes time in reconciliation of invoices with GSTR 2A and following up of suppliers for uploading the invoices within the due date.
Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."
VInay KUMAR N