Analysis of restriction on ITC not appearing in GSTR 2A

CBIC make a significant change in the GST law by inserting rule 36(4) of CGST rule 2017 thereby restricting the taxpayers to avail ITC only up to 120% of eligible ITC appearing in GSTR-2A of a particular month and consequently it is very important to reconcile the GSTR 2A every month to maintain the track of ITC in order to comply with the GST laws

In order to clarify the provision and its applicability, the Government has issued Circular No.123/42/2019 GST dated 11th November 2019 and the important clarifications are

1. 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;

2. The 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, provided that eligibility conditions for availment of ITC are met in respect of the same;

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

4. The restriction imposed is not supplier wise and the credit available under sub rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies, which are otherwise eligible for ITC, whose details have been uploaded by the suppliers.

5. The restriction of 20% applies with respect to eligible input tax credit 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 filing of the returns in FORM GSTR 1 of the suppliers for the said tax period.

Now discuss some situations by taking examples: –

Suppose Company A received inward supplies involving ITC of INR 11,00,000/- out of which INR 1,00,000/- is ineligible ITC) during the month of October 2019 and has to claim ITC in his FORM GSTR 3B for the month of November 2019

	Eligible ITC as per Books (Total Credit – Ineligible ITC)	Eligible ITC as per 2A(Total Credit – Ineligible ITC)	Eligible ITC not appearing in GSTR 2A	Restriction as per Rule 36(4)	Usable credit for the month
	(1)	(2)	(3)	(4)	(5)
			1. – (2)	Minimum of (3) or 20% of (2)	2. + (4)
Case 1	1,000,000.00	600,000.00	400,000.00	120,000.00	720,000.00
Case 2	1,000,000.00	700,000.00	300,000.00	140,000.00	840,000.00
Case 3	1,000,000.00	850,000.00	150,000.00	150,000.00	1,000,000.00

The balance ITC may be claimed by the taxpayer in any of the succeeding months in proportion to the details of missing 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.

Continuing with the previous example-

Case 1 – Supplier upload ITC of Rs 1,50,000/- out of Rs 4,00,000/- and the same is reflecting in GSTR 2A of November month.

Case 2 – Supplier upload ITC of Rs 1,40,000/- out of Rs 3,00,000/- and the same is reflecting in GSTR 2A of November month.

Case 3 – Supplier upload ITC of Rs 50000/- out of Rs 1,50,000/- and the same is reflecting in GSTR 2A of November month.

	Eligible ITC not appearing in GSTR 2A of October month	Balance ITC to be claimable in next months	Eligible ITC in GSTR 2A of next month	Restriction as per Rule 36(4)	Usable credit for the October month in GSTR 3B of November month
	(6)	(7)	(8)	(9)	(10)
	3. of earlier table	(1) – (5) of earlier table	Out of (6)	Minimum of (7) of 20% of (8)	Minimum of (7) or [(8) + (9)]
Case 1	400,000.00	280,000.00	150,000.00	30,000.00	180,000.00
Case 2	300,000.00	160,000.00	140,000.00	32,000.00	160,000.00
Case 3	150,000.00	–	50,000.00	–	–

Crux:- We shall claim full ITC of the particular month when Eligible ITC appearing in 2A = Eligible ITC as per books / 1.2

Till now, we have discussed the scenarios in totality, but the challenge is how to implement the same in head wise. Few of the example to understand the head wise implementation are as follows: –

In October 2019 Company A received professional services from 5 service providers having transaction details as under

Service Provider	Taxable Value	IGST	CGST	SGST	Eligibility U/s 17(5)
XYZ Pvt. Ltd.	100,000.00	–	9,000.00	9,000.00	Ineligible
ABC Pvt. Ltd.	100,000.00	18,000.00	–	–	Eligible
MNO Pvt. Ltd	100,000.00	–	9,000.00	9,000.00	Eligible
PQR Pvt. Ltd.	50,000.00	–	4,500.00	4,500.00	Eligible
KSR Pvt. Ltd.	50,000.00	9,000.00	–	–	Ineligible

Case 1 – Suppose Company MNO Pvt Ltd failed to file GSTR 1 of October month on time and consequently the same is not appearing in GSTR-2A of Company A.

Calculation of Usable Credit in the month of October for Company A are as under –

Total Eligible Credit as per books of accounts – 45,000/-

Eligible Credit appearing in GSTR 2A – 27,000/-

Usable Credit for the month – 120 % of 27,000/- i.e. 32,400/-

Balance credit to be claimable in subsequent periods – (45,000 – 32,400) = 12,600/-

Now the question is how to bifurcate 32,400/- in different heads from accounting aspect as well as reporting aspect in GSTR 3B

Head	Total Eligible Credit	Eligible Credit appearing in GSTR 2A	Restriction as per Rule 36 (4)	Usable Credit for the month	Balance Credit to be claimable in sub -sequent period	Remarks
IGST	18,000	18,000	–	18,000	–	Since full amount of eligible ITC in IGST is appearing in GSTR 2A, we will claim the full ITC in IGST head.
CGST	13,500	4,500	2,700	7,200	6300	Since 20% restriction is imposed on total credit not head wise, we will calculate the 20% on total eligible credit and same shall be bifurcated equally in CGST and SGST in the given case.
SGST	13,500	4,500	2,700	7,200	6300	—–do–
Total	45000	27000	5400	32400	12600

 Case 2 – Suppose Company ABC Pvt Ltd failed to file GSTR 1 of October month on time and consequently the same is not appearing in GSTR-2A of Company A.

Calculation of Usable Credit in the month of October for Company A are as under –

Total Eligible Credit as per books of accounts – 45,000/-

Eligible Credit appearing in GSTR 2A – 27,000/-

Usable Credit for the month – 120 % of 27,000/- i.e. 32,400/-

Balance credit to be claimable in subsequent periods – (45,000 – 32,400) = 12,600/-

Now the question is how to bifurcate 32,400/- in different heads from accounting aspect as well as reporting aspect in GSTR 3B

Head	Total Eligible Credit	Eligible Credit appearing in GSTR 2A	Restriction as per Rule 36 (4)	Usable Credit for the month	Balance Credit to be claimable in sub -sequent period	Remarks
IGST	18,000.00		5,400.00	5,400.00	12,600.00	Since full amount of eligible ITC in CGST and SGST is appearing in GSTR 2A, we will claim the full ITC In CGST and SGST head and balance shall be claimed in IGST head.
CGST	13,500.00	13,500.00		13,500.00	–	—-do—-
SGST	13,500.00	13,500.00		13,500.00	–	—-do—-
Total	45,000.00	27,000.00	5,400.00	32,400.00	12,600.00

Case 3 – Suppose Company ABC Pvt Ltd and PQR Pvt Ltd failed to file GSTR 1 of October month on time and consequently the same is not appearing in GSTR-2A of Company A.

Calculation of Usable Credit in the month of October for Company A are as under –

Total Eligible Credit as per books of accounts – 45,000/-

Eligible Credit appearing in GSTR 2A – 18,000/-

Usable Credit for the month – 120 % of 18,000/- i.e. 21,600/-

Balance credit to be claimable in subsequent periods – (45,000 – 21,600) = 23,400/-

Now the question is how to bifurcate 23,400/- in different heads from accounting aspect as well as reporting aspect in GSTR 3B

Head	Total Eligible Credit	Eligible Credit appearing in GSTR 2A	Restriction as per Rule 36 (4)	Usable Credit for the month	Balance Credit to be claimable in sub-sequent period	Remarks
IGST	18,000.00			–	18,000.00	In the given case, we shall first allocate the 20% of eligible ITC in CGST and SGST Head as Total eligible ITC in CGST and SGST as per books is less than the usable credit.
CGST	13,500.00	9,000.00	1,800.00	10,800.00	2,700.00	—-do—-
SGST	13,500.00	9,000.00	1,800.00	10,800.00	2,700.00	—-do—-
Total	45,000.00	18,000.00	3,600.00	21,600.00	23,400.00

Those are the few examples for your better understanding. But there can be certainly different situations when we start implementing the notification.

Actions points need to be taken from accounting point of view-

1. Reconcile GSTR 2A every month. You all can reconcile the GSTR 2A in tally as well.

2. Make a exception report of invoices which are not appearing in GSTR – 2A.

3. Create proper set up in tally to generate the GSTR 2A from Tally.

4. Make a reconciliation for the bills which are appearing in the GSTR 2A but not booked in the Books of Accounts (for any reason). It will help for the subsequent reconciliation and to avoid mismatch with vendor.

5. Create three more accounts in the name of usable IGST/CGST/SGST and transfer the usable credit for the month in those accounts to keep track of balance itc to be claimable in subsequent period.

Prepared by – CA Saurav Jha

Validated by – CA Mudhit Mehra