Filed your GSTR-1? Yes, check whether your supplier filed it or not before claiming ITC under GSTR-3B

Presenting the Union Budget for 2021-22, Finance Minister Nirmala Sitharaman said that the Budget proposals for this financial year rest on six pillars — health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and ‘Minimum Government, Maximum Governance’. There was several proposals for the benefit of depositors, investors and taxpayers. However, Pandora box of GST contain surprise shock for Registered Taxpayer to be concise for Registered Buyer.

What was change?


Bill seeks to amend section 16 of the Central Goods and Services Tax Act by inserting a new clause (aa) in sub-section (2) thereof, so as to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

Decoding of Provision

Sec 16(1) of CGST Act,2017 deal with Eligibility and Condition for taking credit input charged on any supply of Goods or Services or both to him which are used or intended to be used in course or furtherance of his Business.

Sec16(2) of CGST Act,2017, prescribed some condition, as follow, which need to be fulfilled before ITC claim:-

1. He is in possession of a tax invoice or debit note issue by Supplier,

2. He has received goods or services or both

3. Subject to provision of Section 41, the tax charged in respect of such supply has been actually paid to Government.

4. He has furnished the return under Section 39.

New Provision (2)(aa) inserted, which say Invoices or Debit should be reported by supplier in the statement of outward supplies(GSTR-1) and such details have been communicated(GSTR-2A) to the recipient of such invoice or debit note before claiming ITC in GSTR-3B.

Now normal understanding of provision specified that whatever ITC available on GSTR-2A would be eligible for claim of ITC by Registered Buyer (Only 100%). Via. Notification No. 94/2020-Central Tax dated 22nd December, 2020, The 110% rule changed to  105% rule i.e., the maximum ITC which you can avail will be restricted to {a – ITC as per Books} or { 105% of the invoices reflected in GSTR 2A} under Rule 36(4). In addition, Rule 86B Restrictions on use of amount (99%) available in electronic credit ledger. All this create havoc to Registered Buyer, after procurement of goods or service or both, to claim its legal ITC.

Now the BIG question mark is on Rule 36(4) operability vis-à-vis New provision Sec 16(2)(aa). Rule 36(4) allow 105 % of ITC available in GSTR-2A but this provision restrict it to only 100%. There is urgent need of clarification from GSTIN Council about its operational impact on Innocent Registered Buyer.

If we check condition of Sec 16(c), which provide for payment of taxes to the government by supplier before claim of ITC by Registered Buyer, is subject to Section 41. Section 41 provide “Claim of input tax credit and provisional acceptance thereof.— (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger. So Registered buyer can claim ITC on self-assessment basis but with cap of 5% as specified in Rule 36(4).

 Hope there will be clarification from GSTIN Council on this aspect.

Disclaimer: Every effort has been made to keep the information cited in this article error-free. Suggestions and feedback to improve the task are welcome.

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March 2024