pri Capping of GST input tax credit Capping of GST input tax credit

In line with GST Council’s decision of 37th Council meeting on capping input tax credit, Sub Rule 4 to Rule 36 of the CGST Rules, 2017 has been inserted vide Notification 49/2019 dated 9th October, 2019 which makes it mandatory to review inputs as appearing in GSTR-2A of the taxpayer. It mandates that the taxpayer shall not avail input in excess of 20% of the eligible credit available in GSTR-2A over and above the eligible credit.

For achieving this, the taxpayer has to conduct monthly reconciliation of input with GSTR-2A and then avail the input accordingly (maximum capped to 120% of eligible credit available) in GSTR-3B.

How this will operate:

Suppose a taxpayer is filing GSTR-3B regularly where outward supplies and input tax credit is claimed and taxes are paid on summary basis. The taxpayer has invoices and debit notes amounting to Rs. 50,000/-. However, eligible input appearing in GSTR-2A is Rs 40,000/-.

Prior to applicability of this notification, the taxpayer could have claimed the entire Rs 50,000 based on his own records. However, now this provisional ITC claim cannot exceed Rs 48,000. [Rs 40,000 -Actual ITC based on information available in GSTR-2A and Rs 8,000 – 20% of , i.e. 20% of eligible credit of Rs 40,000]

However, there are certain open points that needs to be addressed and clarification is sought on those matters:

1) How to avail input with regard to supplies where supplier file quarterly outward supplies return (GSTR-1)? Whether this input shall be taken after the return is filed by the supplier? If yes, then this would lead to deferment in availing input tax credit and would adversely impact the business of suppliers filing quarterly returns.

2) Whether it is assumed that the input with regard to supplies where supplier file quarterly outward supplies return will not exceed 20% of the eligible credit in any month?

3) Whether input tax would be available for entries where the supplier has uploaded the data or submitted the return but not filed the same?

4) Whether input on reverse charge basis would be taken into consideration for calculating eligible credit available?

The Government is yet to come up with clarification on this rule, without which it will lead to more uncertainty among businesses.

This notification will come into effect from the date of its publication in the Official Gazette.

Author Bio

Qualification: CA in Practice
Company: D J A S & Co.
Location: Kolkata, West Bengal, India
Member Since: 28 Jun 2019 | Total Posts: 6
Deepak Jain is a member of the Institute of Chartered Accountants of India, having more than 7 years of post-qualification experience in the field of Banking, Taxation, and Audit. A graduate from St. Xavier’s College, Calcutta, he started his career as a Relationship Manager (Eastern India) at View Full Profile

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July 2021