Input Tax Credit restriction in GST | Rule 36(4)

Introduction of new Sub rule (4) inserted in Rule 36 of Central Goods and Services Tax Rules, 2017:

Sub rule (4) to Rule 36 was inserted which reads as follows

“ Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”. “(4) Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”.

In simplified language, we can understand as follows:

Provisional Input tax credit can be availed by a registered person filing GSTR-3B, only to the extent of 20% of eligible credit available in GSTR-2A The amount of eligible credit is arrived upon those invoices or debit notes, the details of which have been uploaded by the supplier in GSTR-2A only.

Change in percentage from 20% to 10%

CBEC through Para No. 2 of Notification No. 75/2019- Central Tax dated 26.12.2019 has reduced the 20% to 10% which states that:

“….In the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the said rules), with effect from the 1st January, 2020, in rule 36, in sub-rule (4), for the figures and words “20 per cent.”, the figures and words “10 per cent.” shall be substituted….”

Lets understand the concept of provisional credit with an example:

 Other relevant points related to concept of Provisional Credit

1. Eligible ITC is the ITC relating to a taxpayer’s business activities such as purchases made, services received, capital assets bought, etc. which is eligible to be claimed to set-off GST liabilities. The GSTR-2A could also contain ineligible ITC reflecting that relates to expenses such as food, club memberships, personal expenditure, etc or ITC mistakenly reflecting due to the wrong GSTIN entered by a supplier. Hence, only eligible ITC will be considered while calculating the limit for 10% provisional credit.

2. The restriction of availment of ITC is imposed only in respect of those invoices /debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded. Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of sub-section (1) of section 37, provided that eligibility conditions for availment of ITC are met in respect of the same. The restriction of 36(4) will be applicable only on the invoices/debit notes on which credit is availed after 09.10.2019

3. As GSTR-2A is a dynamic form which updates based on details uploaded by suppliers, the cut-off date for claiming provisional credit will be the due date of filing returns only. Hence, a taxpayer may claim up to 10% of ITC based on invoices uploaded by his suppliers as on the date of filing his GSTR-1.

4. The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 10% of the eligible credit available.

5. If part of the pending invoices of a supplier is uploaded in a later month, the taxpayer must make sure that provisional credit does not exceed 10% of eligible ITC.

6. The provisional ITC availed in a tax period shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC. This means that the LOWER of provisional ITC or difference in eligible ITC (between books and GSTR-2A) will be considered.