Article explains What’s the restriction on Input Tax Credit under GST, On what Invoices/debit notes is the restriction on Input Tax Credit under GST imposed,  Calculation of restriction of Input Tax Credit under GST, Amount of ITC to be availed under GST, What would be the impact of the restriction on Input Tax Credit under GST and How to deal with this restriction on Input Tax Credit under GST.

The recent notification followed by a circular issued on 11 November 2019 states regarding restriction on availment of ITC. The ITC in respect of invoices or debit notes, the details of which have not been provided for by the supplier has been restricted.

This is not an automatic restriction by the portal and has to be exercised by the taxpayer himself on basis the reconciliation.

A. What’s the restriction on Input Tax Credit under GST?

The taxpayers claiming ITC on the basis of the invoices, are now required to ascertain if the corresponding details are uploaded by the supplier in their GSTR 1 consequently making it available as ITC in buyer’s GSTR 2A.

The amount of ITC to be availed by the taxpayers in respect of invoices whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible credit available in respect of invoices, the details of which have been uploaded by the suppliers.

1) On what Invoices/debit notes is the restriction on Input Tax Credit under GST imposed?

  • If a registered taxable person has not uploaded the details of the invoices/debit notes whose details are to be mentioned as per Section 37(1) of GST Act are restricted for the availment of ITC.
  • The taxpayer who paid on IGST on import, documents issued under Reverse Charge Mechanism etc. can avail full eligible ITC.
  • The restriction is only applicable on those invoices/debit notes on which credit is availed after 9 October 2019.

 2) Calculation of restriction of Input Tax Credit under GST

Under this rule, the restriction is not imposed supplier wise. The credit available will be reconciled with the total eligible credit uploaded by all the suppliers combined.

The supplies on which ITC is not available under any provision will not be considered for calculating 20% of eligible credit available.

3) Amount of ITC to be availed under GST

The ITC for the invoices/debit note whose details have not been uploaded shall not exceed 20% of the eligible credit available for the invoice and debit notes whose details have been uploaded.

The following illustrations can explain eligible ITC:

Case- taxpayer ‘A’ receives 100 invoices involving ITC of Rs. 10 lakh.

Details of supplies eligible for ITC 20% of eligible credit Eligible ITC to be taken
Suppliers have furnished 80 invoices involving ITC of Rs. 6 lakhs Rs. 1,20,000 Rs 7,20,000

[6,00,000 (amount eligible for ITC) + 1,20,000 ((6,00,000*20%) on the basis of details uploaded by the supplier)]

Suppliers have furnished 80 invoices involving ITC of Rs. 7,00,000 Rs. 1,40,000 Rs. 8,40,000

(7,00,000 + 1,40,000)

Suppliers have furnished 75 invoices involving ITC of Rs. 8,50,000 Rs. 1,70,000 10,00,000

(8,50,000 + 1,50,000*)

*Additional amount of ITC availed shall be limited to ensure that ITC availed does not exceed the total eligible ITC.

B. What would be the impact of the restriction on Input Tax Credit under GST?

  • A hit on liquidity:

Currently the taxpayers with annual turnover up to 1.5 crore are required to furnish the GSTR 1 on quarterly basis while others are required to submit GSTR 1 on monthly basis. Further, all the taxpayers are required to settle the net GST liability every month through GSTR 3B and this is the return where the restriction is imposed, which could mean lesser availability of ITC as compared to previous months and consequently output liability will have to be settled through challan remittances.

  • Increased efforts in filing:

This restriction now makes the reconciliation of ITC as per GSTR 2A with the ITC available as per Invoices, an exercise to be carried at-least on a monthly basis.

C.  How to deal with this restriction on Input Tax Credit under GST?

  • Discuss with the supplier:Since it might have a big impact on the liquidity, where the supplier furnishes GSTR 1 on a quarterly basis especially in the cases where the credit period is not so high, as we would have already made the payment (incl. GST) to the supplier and we would again be required to make the payment for the deficient settlement of output owing to restriction on ITC. It would be a lot more convenient if the supplier submits GSTR 1 on a monthly basis or alternatively an arrangement can be made to increase the credit period.
  • Keep your Reconciliation on the track: Reconciliation of credits available as per GSTR 2A with the eligible credits as per available invoices has to be done on a more regular & frequent basis, so that we have a pre-information and we could follow up with the supplier to do the timely compliance.
  •  When can the balance ITC be claimed:
  • Balance ITC can be claimed by the taxpayer in any succeeding months if the details of the invoices are uploaded by the supplier. Proportionate ITC can be claimed as and when the details are uploaded by the supplier.

Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.

The author is a CA in practice at Delhi and can be contacted at: E-mail: abhinandansethia90@gmail.com, Mobile: +91-9811741451

Author Bio

Qualification: CA in Practice
Company: Abhinandan Sethia & Associates
Location: west delhi, New Delhi, IN
Member Since: 26 May 2018 | Total Posts: 35
I am a Practicing Chartered Accountant with over 5 years of professional service experience. My professional services experience include specialization in #GST compliance #Risk based Internal Audits #Risk Management, #business process reviews, #Fraud Investigations etc. among other services View Full Profile

My Published Posts

More Under Goods and Services Tax

One Comment

  1. DIVYESH PATEL says:

    AS PER VIEW PERSONE WHO FILLE THE GSTR-1 QUARTERLY BASIS ARE NOT COVERED UNDER THE RULE 36(4) AS ONLY COVERED SUPPLIER U/S 37(1) READ THE NOTIFICATION 57/2017 DATED 15.11.2017 ALONG WITH THAT

Leave a Comment

Your email address will not be published. Required fields are marked *