Let’s discuss recent changes in GST with new perspective-

As GST become effective from July 2017, we all are happy that there will be seamless flow of ITC and no restrictions to claim ITC but now it is not easy to claim ITC –SOUL OF GST -as we have to cross many stages to claim ITC…

First of all we have to see ITC reflected in GSTR-2A or not

Next we have to see all ITC reflected in GSTR-2A eligible or not i.e Section 17(5)

Then apply Rule 36 (4) –restricting itc to 5% of eligible credit available in GSTR-2b

Further, Rule 86B – restricting 1 % ITC for setting off output tax liability.

So is it seamless flow of ITC ??

Now let us discuss Rule 36(4) amended in detail-

When we talk about Rule 36(4) it was first introduced in October 2019 restricting ITC to 20% of eligible credit available in GSTR-2A then it was further amended to 10 % and now w.e.f from 01.01.2021  further amended to 5% of eligible credit available in GSTR-2B

Earlier it was 10 % of GSTR-2A and now it is 5 % of GSTR-2B

According to me Taxpayer should be allowed to claim full ITC on provisional basis even if not reflected in GSTR-2B if not reflected even in 2 months then ITC should be reversed with interest but restricting ITC EVEN you are eligible not a right way as there may be various reasons ITC not reflected in GSTR-2B –QUARTERLY RETURN FILERS one of reason

Now coming Rule 86B- it is applicable where value of taxable supply other than exempt supply and export in a month exceeds Rs 50 lacs and taxpayer not allowed to use ITC in excess of 99% of output tax liability. Certain exceptions-

  • If registered person has paid more than Rs 1 lac as Income tax in each of last two financial years.
  • If registered person eligible to claim refund of more than Rs 1 lac on account of export under LUT or inverted duty structure.
  • If registered person has paid output tax in cash more than 1% of total output tax applied cumulatively up to said month.
  • If registered person is government department,PSU etc

Now what is this Rule 86B – you have ITC but you cannot use it for setting off your output tax liability – One side government amended Section 50 that interest to be charged on net cash liability on other hand restricting ITC UTILISATION… It means collecting tax from back door if not possible to increase tax rates directly… I agree these rules discussed above have only one objective stop tax evasion and increase government revenue but some how Rule 36(4) blocking working capital of honest taxpayers…

Earlier Rule 86 A  introduced in December 2019 blocking of fraudulent ITC without opportunity of being heard and show cause notice to taxpayer. Is this not a violation of principal of natural justice???

Now we have to see how far these Rule 36(4) , Rule 86 A ,Rule 86B can help government to stop taxpayers claiming FRAUDULENT ITC or just another way to increase government revenue.


Queries/doubts related to above mailed at [email protected]

 Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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May 2021