Explore the recent development regarding excess Input Tax Credit (ITC) availment and its impact on filing GSTR 1. Discover how the introduction of Rule 88D aims to address ITC discrepancies between GSTR 3B and GSTR 2B, impacting the filing process.
GST Council Meeting Decision: In the 50th GST Council Meeting held on July 11, 2023; it was decided that a mechanism shall be developed to deal with the differences in Input tax credit (“ITC”) between Form GSTR 2B & Form GSTR 3B. The council recommended amendment to rule 59(6) along with insertion of new rule 88D along with Form DRC 01C to reduce ITC mismatches.
Implementation of Rule 88D & Handling ITC Mismatches: In terms of the recommendations of the Council, Notification No 38/2023 – Central Tax came into force w.e.f August 4, 2023, notifying Rule 88D on the Manner of dealing with difference in input tax credit available in auto-generated statement containing the details of input tax credit and that availed in return.
Under this rule, if the amount of ITC availed by the taxpayer in GSTR 3B for any tax period or periods exceeds the amount of ITC in Form GSTR 2B, by such amount and such percentage as may be recommended by the Council, a system generated intimation shall be sent on the common portal of the taxpayer.
It is to be noted that although the Council has not yet recommended any percentage or amounts, we have in person observed that notices have been issued in similar circumstances under discrepancy in GSTR 1 & GSTR 3B at the will of the proper officer.
Restriction on GSTR 1 Filing: As a general practice, ITC is reconciled & compared with cumulative GSTR 2B; as a result of which there might be instances where ITC mismatch might happen in cases of month on month comparison. Now, such differences may lead to issue of notice in the form DRC 01C by the common portal & required explanations need to be furnished in response to the same. A new clause in Rule 56(6) have also been inserted which shall restrict filing of GSTR 1 in case no explanation is provided to the notice issued in form DRC 01C.
Importance of Legitimate ITC Claims: Taxpayers should not forgo legitimate ITC claims due to fear of notices. If valid explanations exist for discrepancies, taxpayers should assert their rightful claims and provide the necessary justifications.
Stay Informed and Timely Communication: Taxpayers are advised to regularly monitor the common portal, registered email address, and mobile numbers to ensure timely responses to any communications from the tax department. Staying informed is crucial to complying with the new rule and avoiding unnecessary complications.
Conclusion: The introduction of Rule 88D and the restriction on GSTR 1 filing due to ITC mismatches underline the importance of accurate reporting and prompt communication with tax authorities. Clearing ITC discrepancies and providing explanations promptly will streamline the filing process and maintain compliance with the evolving GST regulations.
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Extract of Rule – 88D , Central Goods and Services Tax Rules, 2017
1 [Manner of dealing with difference in input tax credit available in auto-generated statement containing the details of input tax credit and that availed in return.
88D. (1) Where the amount of input tax credit availed by a registered person in the return for a tax period or periods furnished by him in FORM GSTR-3B exceeds the input tax credit available to such person in accordance with the auto-generated statement containing the details of input tax credit in FORM GSTR-2B in respect of the said tax period or periods, as the case may be, by such amount and such percentage, as may be recommended by the Council, the said registered person shall be intimated of such difference in Part A of FORM GST DRC-01C, electronically on the common portal, and a copy of such intimation shall also be sent to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said difference and directing him to—
(a) pay an amount equal to the excess input tax credit availed in the said FORM GSTR-3B, along with interest payable under section 50, through FORM GST DRC-03, or
(b) explain the reasons for the aforesaid difference in input tax credit on the common portal, within a period of seven days.
(2) The registered person referred to sub-rule (1) shall, upon receipt of the intimation referred to in the said sub-rule, either,
(a) pay an amount equal to the excess input tax credit, as specified in Part A of FORM GST DRC-01C, fully or partially, along with interest payable under section 50, through FORM GST DRC-03 and furnish the details thereof in Part B of FORM GST DRC-01C, electronically on the common portal, or
(b) furnish a reply, electronically on the common portal, incorporating reasons in respect of the amount of excess input tax credit that has still remained to be paid, if any, in Part B of FORM GST DRC-01C, within the period specified in the said sub-rule.
(3) Where any amount specified in the intimation referred to in sub-rule (1) remains to be paid within the period specified in the said sub-rule and where no explanation or reason is furnished by the registered person in default or where the explanation or reason furnished by such person is not found to be acceptable by the proper officer, the said amount shall be liable to be demanded in accordance with the provisions of section 73 or section 74, as the case may be.]
1. Inserted by the Central Goods and Services Tax (Second Amendment) Rules, 2023, w.e.f. 4-8-2023.
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