In our last article, we discussed the various provisions relating to Input tax credit under Draft Model GST law. We had also discussed that there will be more transparency in the system with respect to taxes paid and credit thereon to the recipient.
Here we will understand how the mechanism of input tax credit will work under GST regime as this is going to impact the industry majorly. The model GST law has laid down 4 conditions to avail the input tax credit and one of such conditions is that the supplier must have paid the taxes charged on the invoice. In this way, the recipient will not be in a situation to avail the input tax credit unless, the supplier does pay the taxes.
Filing of return for Output supplies and Inward supplies
Every registered taxable person is required to file a monthly return (in Form GSTR-1) of all output supplies affected during a tax period by 10th day of next month.
This information will be communicated automatically to the recipient of goods or services and shall be available over the common portal to the recipient (in Form GSTR-2A). They shall verify, validate, modify or if required, delete the details relating to outward supplies. The details of inward supplies of taxable goods/services, including that on which taxes are payable under reverse charge basis and credit or debit notes received after 10th but not later than 15th day of the month succeeding the tax period, shall be submitted (in Form GSTR-2) not later than 15th day of the month succeeding the tax period.
The recipient will file the return of inward supply in Form GSTR-2 based on the data
-updated automatically in GSTR-2A, and
-addition, deletion, or any modification relating to such supplies not updated in GSTR-2A,
The details of supplies modified, deleted or included by the recipient and furnished under Form GSTR-2, shall be communicated to the supplier in Form GSTR-1A.
Such supplier may either accept or reject the modifications made by the recipient before 17th day of the month succeeding the tax period and Form GSTR-1 shall stand amended accordingly.
Every registered taxable person paying tax under the normal provision shall file a return of inward supplies, outward supplies of goods and/or services, input tax credit availed, tax payable, tax paid and other particulars as may be prescribed on or before the 20th day of the month succeeding the tax period in Form GSTR-3 electronically through the common portal.
Matching: Return of Inward and Outward supply
Matching of Input tax credit
The detail of inward supply allowed provisionally under the inward supply return, will be matched after the due date of filing of consolidated return under Form GSTR-3. The following shall be validated or matched:
- GSTIN of the supplier
- GSTIN of the recipient
- Invoice/Debit note date
- Invoice/Debit note number
- Taxable value
- Tax amount
The claim of input tax credit accepted by the recipient shall stand un-changed if the corresponding supplier has filed a valid return.
The claim of input tax credit shall be considered as matched where the ITC claim is less than or equal to the output tax paid. Final acceptance of claim of ITC and mismatches shall be communicated to the registered taxable person who has claimed the credit in Form GST ITC 1.
A recipient to whom any discrepancy is made available may make suitable rectifications in the statement of inward supplies to be furnished for the month in which the discrepancy is made available.
Incase discrepancy has not been rectified, an amount to extent of discrepancy shall be added to the output tax liability of the recipient in his return in Form GSTR-3 for the month succeeding the month in which discrepancy is made available.
The recipient shall also be liable to pay interest on the amount so added from the date of availing the credit till the corresponding additions made.
Re-availement – Further, the recipient shall be eligible to reduce, from his output tax liability, the amount so added if the supplier declares the details of the invoice and/or debit note in his valid return.
Further, the interest paid on the amount so added shall be refunded by crediting the amount in corresponding head of electronic credit ledger.
Matching of output tax liability
The detail of credit notes furnished by the registered taxable person shall be matched with the corresponding reversal of input tax credit by the recipient. The claim for reduction in tax liability that matches with the corresponding input tax credit reversal by the recipient shall be finally accepted.
In case any claim is more than the reversal of input tax credit or no corresponding reversal of input tax credit then such discrepancy shall be communicated to supplier and recipient both.
The recipient will rectify the discrepancy in the valid return furnished by him for the month in which such discrepancy has been communicated. But if the recipient does not rectify such discrepancy then the amount shall be added to the output tax liability of the supplier in his return for the month following the month in which discrepancy was communicated.
Further, the supplier shall also be charged an interest from the date of reduction of tax liability till the corresponding additions into the output tax liability.
Reduction in output tax liability: The supplier shall be eligible to reduce from his output tax liability the amount so added if the recipient declares the details of credit note in his valid return filed within the time specified for rectification of mistakes as per provided under section 34(9) i.e. 30th day of September following the year for which rectification to be filed or date of furnishing of annual return whichever is earlier.
The interest paid on the amount so added shall be refunded by crediting the amount in corresponding column of electronic credit ledger.
One of open issues:
State wise eligibility of Input tax credit:
Under GST regime, the availability of input tax credit of taxes paid in a state where the assessee is not registered is still a grey area. It is very general that a tax payer avails the services in a state where he is not registered and pays taxes on it. For example, a CA firm registered in Delhi avails services of hotel accommodation in a Maharashtra. Now, the hotel will charge CGST and SGST payable in Maharashtra from the CA firm. Now, the question arises whether the CGST and SGST paid in Maharashtra is eligible input tax credit for the CA firm when such firm is not registered in Maharashtra.
Thus, the provisions of input tax credit under GST regime are going bring challenge for the industry. It will be required for the suppliers to keep the records updated and reconciled with the Electronic credit ledger else it will be resultant to additional output tax liability along with interest thereon. Further, there will be increased follow ups with the vendors to get the credit on the Electronic credit ledger.
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST.
(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at firstname.lastname@example.org, 9999836182/9818449179)