Input tax Credit restriction in GST

Introduction of sub-rule 36(4)

Here we are going to talk about the restriction on claiming the input tax credit under GST.

CBEC issued the Notification No. 49/2019 – Central Tax dated 09.10.2019 where, through Para 3, a new sub-rule 36(4) was inserted, which states that:

“(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.”.

Let’s understand applicability of the above sub-rule with the help of an illustration: –

a. The total eligible credit as per the Books of accounts in the month of Oct 19 is INR 1,000/-

b. The total eligible credit of invoices in GSTR-2A matching with invoices in books of accounts is INR 800/– only.

Before the introduction of Rule 36(4): Taxpayer can claim the whole input tax credit of INR 1,000/- while filing the return of Oct 19.

After the introduction of Rule 36(4): The maximum credit that a taxpayer can claim in the return is lower of:

1. 1,000 or;

2. 800+(800*20%) i.e. 160 so the total amount is INR 960/- only.

Accordingly, now taxpayer can claim only INR 960/- input credit while filing the GST return.

Practical Issues due to the introduction of above sub-rule

1. Quarterly GSTR-1 return credit: As the taxpayers have the option, having turnover less than INR 1.5 crore, to file the GSTR-1 return on quarterly basis. Consequently, input credit related to their invoices will reflect in GSTR-2A of the recipient only after the ending of that relevant quarter only, hence no recipient will be eligible to claim the input credit of the such taxpayers in the mid of the any quarter.

2. Effect on Working Capital: Due to problem No. 1 discussed above, same will also effect on the working capital of the recipient as the recipient has to pay tax two times. First time, when he makes payment to the supplier (Filing Quarterly Return) of the tax invoices and;

Second time, when he makes payment of his output tax liability while filing the GSTR-3B return without claiming the input tax credit of such suppliers.

Clarifications released by CBEC

There were also other problems faced by the taxpayers, considering the same CBEC released the Circular No. 123/42/2019– GST dated 11.11.2019 and clarified the below points:

♦ What are the invoices / debit notes on which the restriction under rule 36(4) of the CGST Rules shall apply?

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

♦ Whether the said restriction is to be calculated supplier wise or on consolidated basis?

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 20 per cent. of the eligible credit available.

♦ FORM GSTR-2A being a dynamic document, what would be the amount of input tax credit that is admissible to the taxpayers for a particular tax period in respect of invoices /debit notes whose details have not been uploaded by the suppliers?

The amount of input tax credit in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under subsection (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37.

♦ How much ITC a registered tax payer can avail in his FORM GSTR-3B in a month in case the details of some of the invoices have not been uploaded by the suppliers under subsection (1) of section 37.

Sub-rule (4) of rule 36 prescribes that the ITC 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.

♦ Sub-rule (4) of rule 36 prescribes that the ITC 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.

The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers. In other words, taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC.

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….”

Accordingly, taxpayers are now restricted to 10% excess input credit of what is reflecting in GSTR-2A while filing the GSTR-3B return. Hence, recipient is now also worried about whether the supplier has shown his tax invoice correctly in GSTR-1 and whether the supplier has filed his GSTR-1 within due time, which will help the recipient to claim the input credit on such invoice otherwise recipient has to reverse the same along with interest.

Disclaimer:

Any views or opinions presented in this article are solely those of the author and do not necessarily accepts any liability for the content of this article or for the consequences of any action taken on the basis of information provided.