Practical Implementation of Rule 36(4) (5% ITC Rule) By GST Return Preparer

Rule 36(4) of CGST Rules, 2017 inserted vide Notification No. 49/2019 dated 09^th Oct, 2019 and it was made applicable w.e.f. 09^th Oct, 2019. Enough hue and cry had taken place ever since application of this Rule came in existent. The issue was mainly due to quarterly GSTR-1 filers. According to my opinion very few taxpayers were following this rule till October 2020 due to divergent opinion of experts and practical difficulty with quarterly suppliers. The launch of GSTR-2B since July 2020 and thereafter linking with GSTR-3B since November 2020 finally restricted the ITC availmentupto the amount of ITC uploaded by suppliers through GSTR-1 plus 10% thereof. The taxpayers are surprized with the move of GSTN and now bound to take input of B2B supply upto the amount available in GSTR-2B plus 10% for November and December 2020. Rule 36(4) further amended vide Notification No. 94/2020-Central Tax dated December 22, 2020to reduce the limit of 10% to 5% w.e.f. 01-01-2021.

Now practical problem with taxpayer and GST return preparer is that although asper new QRMP scheme a quarterly dealer can also upload invoices on monthly basis through IFF (Invoice furnishing facility) so that there would be no problem with the purchaser to avail ITC but late uploading of GSTR-1 or IFF can lead to non availment of ITC in the same month on the part of purchaser. In such situations every purchaser will like to avail the benefit of 10%/5% buffer ITC.

It is pertinent to note that this buffer ITC has direct relation with the invoice appearing in GSTR-2B as it has to be calculated on ITC asper GSTR-2B but no relation to invoice not uploaded by the suppliers for which this 5% buffer ITC is availed by the purchaser. Missing invoices in GSTR-2B could be uploaded by the supplier belatedly and could become part of subsequent months GSTR-2B. When you file GSTR-3B of a particular month, you have to see whether ITC of previous months appearing in 2B of current month ? If so which are the invoices of previous months ? How much ITC you claimed against those invoices within buffer limit ? As the financial year will progress, this task shall become tedious covering more and more months. How to link that 5% buffer ITC of a particular month with the invoices appearing in subsequent month’s GSTR-2B ?  Whether a taxpayer, accountant or tax professional have enough time to make a reconciliation each month to carry-out this exercise ?

I have tried to minimize the burden of this task and made a simple table which can help you to make a reconciliation of ITC for a particular month to see whether you are claiming correct ITC which would not lead to reversal of ITC later.

What you have to do ? You have to prepare a table in MS excel the template of which as provided below.You have to update entries of ITC in the table before filing of GSTR-3B. This table shall give you the tentative amount of your ITC to be claimed for a particular month. This table will tell you what amount of ITC is to be claimed keeping in view the buffer limit of 5% in aggregate in a particular tax period.

COMPARISON OF ITC OF BOOKS WITH GSTR-3B

NAME OF REGISTERED PERSON :
GSTN:
F.Y.

You can see the above table. You have to update ITC asper books, ITC asper GSTR-2Bx1.05 and ITC actually claimed in GSTR-3B for each month in above table. Also do sum of all columns to find aggregate amount in Total.

You have to do one exercise each month before claiming ITC in GSTR-3B. You should update the data of that month in above table for which you are filing GSTR-3B except figures at Column-“C”. The figure at column-“C” shall be filled in such a way that it should fulfil two conditions as under.

Condition-1 :ITC to be claimed in GSTR-3B should not be more than ITC asper GSTR-2Bx1.05 for that month.

Condition-2  :   Total ITC asper Column-“C” should not exceed Total ITC of Column-“A” each for CGST, SGST and IGST separately.

Where in a particular month, Condition-1 is satisfied but Condition-2 is not satisfied meaning thereby aggregate ITC at Column-“C” is more than aggregate ITC at Column-“A” then ITC at Column-“C” for a particular month shall be filled by reducing appropriate amount so that aggregate ITC at Column-“C” become equal to ITC at Column-“A”. The taxpayer has to claim so reduced amount in GSTR-3B for that month.

This practice shall not let you claim ITC in GSTR-3B which could be more than ITC in books of accounts and also let you enjoy the buffer ITC of 5% effectively.

Some Issues to be addressed in regime of Rule 36(4) are as under :-

Invoices are issued upto October 2020 by supplier but supplier uploaded invoices belatedly in GSTR-1 and these are reflecting in GSTR-2B of November onwards. What to do of such invoices while claiming ITC asper GSTR-2B for a particular month i.e. November onwards ?

Ans. :  You should do invoice level reconciliation of ITC asper books of accounts and GSTR-2A from April 2020 to October 2020. You can find two types of invoices after such reconciliation. One which are taken by you in books of accounts but not reflecting in GSTR-2A yet. Second Reflecting in GSTR-2A but input not taken in books of accounts. You should not claim for first type of invoices again if these are reflecting in GSTR-2B after your reconciliation as this will led to double claim of ITC. In such situation deduct the amount of ITC for such invoices from GSTR-2B and claim the net ITC plus 10%/5% thereof. In case of second type of invoices, immediately correct your books of accounts and stand “Input Credit Account”  in your books for those invoices and add the figure in Column-“A” of given Table in the month of reconciliation itself. Claim 5% buffer ITC until Total ITC asper books after reconciliation get exhaust. You can also do one thing suppose you have not claimed ITC of a particular invoice upto October 2020 in GSTR-3B despite same is reflecting in GSTR-2A upto October 2020. Now claiming that ITC can exceed the ITC asper GSTR-2B and your Table of ITC can become ‘Red’. You can do a tradeoff for such invoices with the invoices already claimed upto October 2020 and coming in GSTR-2B November onwards.

Q.2 What about those invoices issued between November 2020 to 31^st March 2021 but reflecting in GSTR-2B of April 2021 onwards ?

Ans. :  You have to do one thing about those invoices. Download GSTR-2B in excel format and filter those invoices separately. Do total of such invoices. Add total of such invoices at serial number 13 at column-“C” in above Table. Now see whether aggregate at Column-“C” is less than or equal to aggregate of Column-“A”. If so then claim such invoices in the month in which these are reflecting in GSTR-2B. Otherwise you may claim such invoices in next financial year to the extent so that these are not exceeding total ITC asper books of accounts for FY 2020-21. However where Total ITC asper books of accounts is equal to ITC claimed asper GSTR-3B for the financial year 2020-21 due to use of 5% buffer limit then such ITC of such invoices should not be claimed in next financial year again. In that situation, ITC of such invoices should be reduced from ITC of GSTR-2B and Net ITC plus 5% should be claimed in that month.

The above are the personal views and interpretation by the author and any matter from the above do not cast any responsibility on the author.

Please submit your comments/suggestions in the comment section for any omission/error. Please also submit your comment if you find it helpful.

Author can be reached at nitinkumsgl@gmail.com