20% ITC Restriction under Rule 36(4) of CGST Rules, 2017

Clarification regarding New Rule 36(4) of CGST Rules, 2017, Restriction in Availment of  Input Tax Credit (ITC)

Circular No. 123/42/2019– GST, Dt. 11 Nov 2019

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 and therefore, the availment of restricted credit in terms of sub-rule (4) of rule 36 of CGST Rules shall be done on self-assessment basis by the tax payers.

Various issues relating to implementation of the said sub-rule and the clarification on each of these points is as under: –

Issue No. 1

On which invoices / debit notes, Restriction under rule 36(4) of the CGST Rules shall apply ?

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 under sub-section (1) of section 37 (Basically GSTR-1) and which have not been uploaded.

Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of sub-section (1) of section 37 (GSTR-1), provided that eligibility conditions for availment of ITC are met in respect of the same.

The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.

Issue No. 2

Whether the said restriction is to be calculated supplier wise or on consolidated basis?

The restriction imposed is not supplier wise, It is on consolidated basis; total eligible ITC from all suppliers against all supplies whose details have been uploaded by the suppliers in GSTR-1.

Further, the calculation would be based on only those invoices which are otherwise eligible for ITC.

Accordingly, those invoices on which ITC is not available under any of the provision [say under section 17 (5)] would not be considered for calculating 20% of the eligible credit available

FORM GSTR-2A being a dynamic document, How much ITC a registered tax payer can avail in his FORM GSTR-3B in a month in case the details of some of the invoices have not been uploaded by the suppliers under sub-section (1) of section 37.

The amount of ITC in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible ITC available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 as on the due date of FORM GSTR-1 of the suppliers for the said tax period.

The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of FORM GSTR-1.

The eligible ITC that can be availed is explained by way of illustrations, in a tabulated form, below.

In the illustrations, say a taxpayer “R” receives 100 invoices (for inward supply of goods or services) involving ITC of Rs. 10 lakhs, from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.

Issue No. 4

When can balance ITC be claimed in case availment of ITC is restricted as per the provisions of rule 36(4)?

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 provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers

After Studying all clarification in this circular would like to conclude that,

A taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC/ 1.2. (i.e. 83.33%),

The same is explained for Case No. 1, 2 and 3 above

In present illustration by “R”, in case total ITC pertaining to invoices the details of which have been uploaded reaches Rs. 8.3 lakhs (Rs 10 lakhs /1.20).  

Calculate Eligible ITC as per Rule 36(4)