GST input tax credit restriction new rules- Accounting perspective

The CBIC imposed the restriction on availment of input tax credit (ITC) under GST in respect of invoices or debit notes, the details of which not have been uploaded by the supplies under sub section (1) of section 37 of CGST act.

CBIC inserted the new provision under rule 36 of chapter V input tax credit with effect from 9th October 2019, as per the new provision the registered person allow to avail the input tax credit only 20% of the eligible credit against the details of which have not been uploaded by the suppliers under sub-section (1) of section 37 for the particular month/period vide Notification No. 49/2019 Dt: 09th October 2019

Further this restriction of 20% have been reduced to 10% with effect from 1st January 2020 vide Notification No. 75/2019 Dt: 26th December 2019.

This rule will lead high complications in terms of compliance, returns and accounting matters, and also affect the working capital and cash flow issue to the tax payer.

The industry and tax professional are already giving several request and representation to defer this rule due to complication. This article discussing about the accounting perspective of this rule apart from your input credit monitoring, GST return reconciliation, state wise records maintenance and input credit adjustment etc.

To capture and comply this rule in accounting perspective along with the control and GSTR-2A reconciliation and GSTR-3B return reconciliation with the books we should have the detailed GST ledger accounts in our chart of accounts. I will list out the necessary GLs required below

1. CGST Output ledger- (by state) – This will be used to account your CGST output liability on your supply for respective state.

2. SGST Output ledger – (by state) – This will be used to account your SGST output liability on your supply for respective state.

3. IGST output ledger – (by state) – This will be used to account your IGST output liability on your supply for respective state.

4. CGST Input ledger- (by state) – This will be used to account the CGST input credit initially availed/taken for the respective state.

5. SGST Input ledger – (by state) – This will be used to account the SGST input credit initially availed/taken for the respective state.

6. IGST Input ledger – (by state) this will be used to account the IGST input credit initially availed/taken for the respective state.

7. Matched -CGST Input ledger- (by state) – This will be used to account the Eligible CGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal

8. Matched -SGST Input ledger – (by state) This will be used to account the Eligible SGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal

9. Matched – IGST Input ledger – (by state) This will be used to account the Eligible IGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal

10. Electronic cash ledger- (By state) – This will be used for accounting the different GSTs paid in cash by state.

11. Provisional Credit ledger- CGST- (State) This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by state

12. Provisional Credit ledger- SGST- (State) This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by state

13. Provisional Credit ledger- IGST-(State) This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by state.

14. GST payment clearing ledger- (Optional)- This ledger can be optional if tax payer want to transfer the output and input in one ledger and finally arrive the liability/excess before finalising the return. We can create the same.

Now we start analysing the accounting entry for each transaction beginning with your supply to understand the full concept

Month: 1

Transaction 1: Supply of goods/ Service (Our Sales) Rs.1,00,000 plus GST 18%

Details Dr Cr
Sundry Debtors 1,18,000
Sales a/c 1,00,000
CGST output A/c 9,000
SGST output A/c 9,000
( Being supply of goods )

Transaction 2: Purchase of goods/ Service (Our Input) Rs.50000 plus GST 18%

Details Dr Cr
Purchases/Expenses 50,000
CGST Input –A/c 4,500
SGST Input A/c 4,500
Creditors A/c 59,000
( Being purchase of goods )

Transaction 3: Out of availed Input Rs.9000 only Rs.8,000 ( Rs.4000 each CGST & SGST) are eligible and Rs.1000 are ineligible credit So we need to reverse Rs.1000

Details Dr Cr
Purchases/Expenses 1000
CGST Input –A/c 500
SGST Input A/c 500
( Being ineligible credit reversal)

Transaction 4: Out of eligible Input Rs.8000 only Rs.6,000 GST worth invoice/debit notes uploaded by supplies in GST portal and available in GSTR-2A So we can pass the below entry

Details Dr Cr
Matched CGST Input a/c 3000
Matched SGST Input a/c 3000
CGST Input –A/c 3000
SGST Input A/c 3000
( Being Matched Input credit with GSTR-2A)

Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

Details CGST

Rs

SGST

Rs

Actual input credit taken for the month- (A) 4500 4500
Less: Ineligible Credits –(B) 500 500
Balance –C= (A-B) 4000 4000
Less: Matched Credit with GSTR-2A –(D) 3000 3000
Match pending Credit- E=(C-D) 1000 1000
Provisional credit can be taken = 10% on (D) 300 300

Now we arrive the tax liability for the month

Details CGST

Rs.

SGST

Rs.

Out tax liability 9000 9000
Less: Input credit 4500 4500
Add: Ineligible credit 500 500
Add: Match pending credit 1000 1000
Less: Provision credit – Rule-36(4) 300 300
Net liability to be paid in cash for the month 5700 5700

Now the entry for Provisional in the books below

Details Dr Cr
GST payment clearing 600
Provisional Credit ledger- CGST 300
Provisional Credit ledger- SGST 300
( Being Provision credit as per Rule-36(4) for Month

Now entry for GST payment

Details Dr Cr
Electronic cash ledger 11400
Cash/Bank 11400
(Being GST payment for the month)

Now set off the liability and input for the month

Details Dr Cr
CGST output A/c 9,000
SGST output A/c 9,000
Matched CGST Input a/c 3000
Matched SGST Input a/c 3000
Electronic cash ledger 11400
GST payment clearing 600

For the above entries your month 1 will be closed and now you carry the below 2 ledger balance for next month

Ledger CGST SGST
GST Input ledger- Debit ( which will unmatched input credit) 1000 1000
Provisional Credit ledger – Credit balance (300) (300)

Before carrying these balance to next month we need to remember the below points

  1. Input credit available in GSTR-2A can be reconciled matched till the date of filing of your GSTR-3B return, so accordingly you need to pass the entries based on your period closing date.
  2. This restriction of 10% is to be calculated on consolidated of available eligible credit in GSTR-2A not on supplier wise. But the practically we need to follow the supplier wise only to avoid more complications because, for example below
  3. In case supplier uploaded the invoice and its reflecting in GSTR-2A but you have not received the same- ultimately you cannot avail the input credit
  4. In case we have taken the credit but supplier not uploaded the invoice, this credit not available in GSTR-2A hence unable to claim.
  5. In case mismatch due to invoice number, amount or tax amount- first we need to correct the mistakes for reconciliation

In all the above cases we need to reconcile the details supplier wise only.

  1. This rule will not apply on IGST paid on imports and Input credit received through Input credit Distributor (ISD).
  2. At any point of time the provisional input credit taken cannot be more than your unmatched credit for the particular month. In the above example the unmatched credit is Rs.1000 for each CGST & SGST each so your provisional credit cannot be more than Rs.1000 CGST & SGST.
  3. The balance unmatched input credit for the particular month may be claimed in any of the succeeding month provided of those invoices are uploaded by the suppliers.
  4. We can claim proportionate input credit as and when detailed of some invoices are uploaded by the suppliers provided that the credit on invoices, the details of which are not uploaded remains under 20% of the eligible input tax credit, the details which are uploaded by the supplier.

Now we see the succeeding month how the accounting flow will be passed

Transaction 1: Supply of goods/ Service (Our Sales) Rs.1,50,000 plus GST 18%

Details Dr Cr
Sundry Debtors 1,77,000
Sales a/c 1,50,000
CGST output A/c 13,500
SGST output A/c 13,500
( Being supply of goods )

Transaction 2: Purchase of goods/ Service (Our Input) Rs.80000 plus GST 18%

Details Dr Cr
Purchases/Expenses 80,000
CGST Input –A/c 7,200
SGST Input A/c 7,200
Creditors A/c 94,400
( Being purchase of goods )

Transaction 3: Out of availed Input Rs.14, 400 only Rs.13, 000 (Rs.6500 each CGST & SGST) eligible and Rs.1400 ineligible credit So we need to reverse Rs.1400

Details Dr Cr
Purchases/Expenses 1400
CGST Input –A/c 700
SGST Input A/c 700
( Being ineligible credit reversal)

Transaction 4: Out of eligible Input Rs.13000 only Rs.10,000 GST worth invoice/debit notes uploaded by supplies in GST portal and available in GSTR-2A So we can pass the below entry

Details Dr Cr
Matched CGST Input a/c 5000
Matched SGST Input a/c 5000
CGST Input –A/c 5000
SGST Input A/c 5000
( Being Matched Input credit with GSTR-2A)

Transaction 5: Criteria 1:

Now some of the invoice unmatched last month GST worth Rs.1000 has been uploaded by the supplier current month, so no we eligible to avail that credit 100%

Details Dr Cr
Matched CGST Input a/c 500
Matched SGST Input a/c 500
CGST Input –A/c 5000
SGST Input A/c 5000
( Being last month unmatched Input credit with GSTR-2A this month matched )

Checking the Provisional credit balance for month: 1

Details CGST

Rs.

SGST

Rs.

Total Eligible Input credit for the month 4000 4000
Less: Input matched and availed 3000 3000
Balance 1000 1000
Less :Provisional Credit availed for the month 300 300
Less: Invoice matched current month 500 500
Balance input credit 200 200

Based on the above calculation we still have the balance to available here

Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

Details CGST

Rs

SGST

Rs

Actual input credit taken for the month- (A) 7200 7200
Less: Ineligible Credits –(B) 700 700
Balance –C= (A-B) 6500 6500
Less: Matched Credit with GSTR-2A –(D) For the month 5000 5000
Match pending Credit- E=(C-D) 1500 1500
Input on pending match invoice matched this month –(F) 500 500
Total Eligible credit available for the month G=(D+F) 5500 5500
Provisional credit can be taken = 10% on (G) 550 550

Now we arrive the tax liability for the month

Details CGST

Rs.

SGST

Rs.

Out tax liability 13500 13500
Less: Input credit for the month 7200 7200
Add: Ineligible credit 700 700
Add: Match pending credit 1500 1500
Less: Last month pending credit matched 500 500
Less: Provision credit – Rule-36(4) 550 550
Net liability to be paid in cash for the month 7450 7450

Now the entry for Provisional in the books below

Details Dr Cr
GST payment clearing 1100
Provisional Credit ledger- CGST 550
Provisional Credit ledger- SGST 550
( Being Provision credit as per Rule-36(4) for Month

Now entry for GST payment

Details Dr Cr
Electronic cash ledger 14900
Cash/Bank 14900
(Being GST payment for the month)

Now set off the liability and input for the month

Details Dr Cr
CGST output A/c 13,500
SGST output A/c 13,500
Matched CGST Input a/c 5500
Matched SGST Input a/c 5500
Electronic cash ledger 14900
GST payment clearing 1100

Transaction 5: -Criteria 2:

All of the invoice unmatched last month GST has been uploaded by the supplier current month, so no we eligible to avail that credit 100%

Details Dr Cr
Matched CGST Input a/c 1000
Matched SGST Input a/c 1000
CGST Input –A/c 1000
SGST Input A/c 1000
( Being last month unmatched Input credit with GSTR-2A this month matched )

Checking the Provisional credit balance for month: 1

Details CGST

Rs.

SGST

Rs.

Total Eligible Input credit for the month 4000 4000
Less: Input matched and availed 3000 3000
Balance 1000 1000
Less :Provisional Credit availed for the month 300 300
Less: Invoice matched current month 1000 1000
Balance input credit (300) (300)

Based on the above calculation your provisional credit for the month is exceeding your eligible credit available for the month by Rs.300 CGST & SGST. In this case you have to restrict your Input credit for the month by R.300 each CGST & SGST

Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

Details CGST

Rs

SGST

Rs

Actual input credit taken for the month- (A) 7200 7200
Less: Ineligible Credits –(B) 700 700
Balance –C= (A-B) 6500 6500
Less: Matched Credit with GSTR-2A –(D) For the month 5000 5000
Match pending Credit- E=(C-D) 1500 1500
Input on pending match invoice matched this month –(F) 1000 1000
Total Eligible credit available for the month G=(D+F) 5500 5500
Provisional credit can be taken = 10% on (G) 550 550
Excess Provisional Credit Month -1 since all invoice reflected (300) (300)
Net Provisional credit to be restricted for the month 250 250

Now we arrive the tax liability for the month

Details CGST

Rs.

SGST

Rs.

Out tax liability 13500 13500
Less: Input credit for the month 7200 7200
Add: Ineligible credit 700 700
Add: Match pending credit 1500 1500
Less: Last month pending credit matched 1000 1000
Less: Provision credit – Rule-36(4) 250 250
Net liability to be paid in cash for the month 7250 7250

Now the entry for Provisional in the books below

Details Dr Cr
GST payment clearing 500
Provisional Credit ledger- CGST 250
Provisional Credit ledger- SGST 250
( Being Provision credit as per Rule-36(4) for Month

Now entry for GST payment

Details Dr Cr
Electronic cash ledger 14500
Cash/Bank 14500
(Being GST payment for the month)

Now set off the liability and input for the month

Details Dr Cr
CGST output A/c 13,500
SGST output A/c 13,500
Matched CGST Input a/c 6000
Matched SGST Input a/c 6000
Electronic cash ledger 14500
GST payment clearing 500

For the above entries your month 2 will be closed and now you carry the below 2 ledger balance for next month

For Criteria: 1

Ledger CGST SGST
GST Input ledger- Debit ( which will unmatched input credit) 2000 2000
Provisional Credit ledger – Credit balance (850) (850)

For Criteria: 2

Ledger CGST SGST
GST Input ledger- Debit ( which will unmatched input credit) 5000 5000
Provisional Credit ledger – Credit balance (550) (550)

The above entries are looks simple but this will involve heavy work for reconciliation of each state GST input ledger month wise and arrive the matched and unmatched invoices and maintain the monthly provisional credit ledger etc. for the understanding convenience article discussed with only CGST & CGST the same concept will apply for IGST transactions also.

The above entries are proposed for understand the provisions only.

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2 Comments

  1. Anandhi says:

    “I’ve suggested this article to many friends of mine as they really wanted to know about the guidelines for tax credit restrictions and its main rules. It helps to increase your perspective and enhances the knowledge to a great extent.

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