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
- 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.
- 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
- 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
- In case we have taken the credit but supplier not uploaded the invoice, this credit not available in GSTR-2A hence unable to claim.
- 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.
- This rule will not apply on IGST paid on imports and Input credit received through Input credit Distributor (ISD).
- 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.
- 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.
- 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.
Author Bio
“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.