prpri ITC in GSTR-3B cannot exceed 105% of GSTR-2A- Analysis ITC in GSTR-3B cannot exceed 105% of GSTR-2A- Analysis

Amendment in rule 36(4) ITC cannot exceed in GSTR-3B of 105%- GSTR-2A and Steps to be taken w.r.t ITC post amendment

I. Amendment in Rule 36(4) – Restriction on ITC to extend of 105% eligible ITC in GSTR-2A or BoA’s whichever is lower

1. Rule 36(4) was introduced to restrict the availment of credit on invoices and debit notes uploaded by the supplier in GSTR 1 up to 10% [20% for period 01.10.2019 – 31.12.2019] of the eligible credit available on invoices and debit notes details of which have been uploaded by the suppliers in GSTR 1. Now 10% has been amended to 5% w.e.f 01.01.2021 without any reasonable justification

Note: The restriction is applicable only on those invoices or debit notes which are to be uploaded by the supplier under section 37(1) of CGST Act i.e., in his GSTR-1 but which have not been uploaded by him. Therefore, one could avail full ITC of the GST paid on the following:

  • IGST paid on the import of goods;
  • IGST paid on the import of services under RCM;
  • ITC distributed by ISD availed on the basis of ISD invoice; and
  • ITC of the GST paid under RCM by the recipient on the procurements which are taxable under RCM availed on the basis of RCM document i.e., self-invoice [for ex., legal services, GTA services, etc.].

The restriction imposed is not supplier wise: Therefore, one would be required to consider the above restriction on a consolidated basis i.e., on the basis of total eligible ITC appearing in its GSTR-2A and total eligible ITC as per its books of accounts. It would not be required to do the comparison supplier wise or invoice wise

2. Further, the restriction placed in Rule 36(4) is ultra vires CGST Act, 2017, as it appears to have been inserted in Rules in accordance with Section 43A of CGST Act, 2017. Section 43A was inserted by CGST Amendment Act, 2018, which is however, not notified as of date. Where section is not yet notified, the above rule would be ultra vires the law.

3. Further one may need to appoint one executive exclusively for the purpose for doing the reconciliation of ITC between books of accounts & GSTR-2A/2B in GSTN Portal. His job would only be to follow up with vendors for continuous filing of GSTR-1 Returns. Instead of doing business one may need to be behind vendors for filing the GSTR-1 returns from their end.

4. As per Section 37 of the CGST Act,2017 a registered supplier can upload/ modify the invoices relating to a particular financial year till the due date of filing the return of September of the subsequent financial year or furnishing of annual return whichever is earlier.

5. Therefore, the suppliers are having ample time to file their GSTR-1s for the financial year 2019-20. We are constantly making our honest efforts, we are behind our vendors & demanding them for filing the GSTR-1.

II. Steps to be taken w.r.t ITC

  • Section 16(2) Check condition for availment of ITC
  • Section 17(5) Check eligibility whether blocked or not
  • GSTR-2A/2B invoice details reconciliation whether uploaded by vendors or not
  • Payment by vendor – Follow up with vendor whether he filed GSTR-3B and paid GST of invoice issued – The condition to track whether the tax charged in respect of the inward supply has been actually paid to Government either through cash or credit seems impossible as there are invoice level linkage could be matched with GSTR-3B of the supplier as it is a summary return.
  • Rule 36(4) restriction 105% of eligible ITC in GSTR-2A
  • Rule 42 and 43 reversal to be taken care
  • Rule 86B Restriction for payment of taxes through ITC maximum 99% and 1% in cash mandatory – where the value of taxable supply in a month exceeds 50 Lakhs rupees [other than exempt supply and zero-rated supply] w.e.f. 1st January 2021.
  • Rule 86A Check whether ITC is blocked or not by dept []
  • Appoint an entire team for the above procedure instead of ease of doing business
  • Check for GSTR2A vs GSTR3B differences notices issued by dept as it is issued without considering even the prima facie facts of assessee and its business

Isn’t it’s so easy to avail seamless ITC now? One may think to expense the ITC itself, it has become more direct tax rather than indirect tax – Credit has lost its presence.

Please reach at in case of clarifications

Author Bio

Qualification: Student - CA/CS/CMA
Company: Hiregange & Associates
Location: Bengaluru, Karnataka, IN
Member Since: 21 Mar 2019 | Total Posts: 13
Experienced Articled Assistant in consultation and compliance in Indirect Tax (IDT). Strong administrative professional with a CA focused in Accounting and Finance from The Institute of Chartered Accountants of India. View Full Profile

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  1. AMIT JAIN says:

    i had filed my gstr-1, late by 1 day due power brake down for last 3 day before filing and i am receiving call from my customers to pay itc as it is not reflecting GSTR2B

  2. amrit gupta says:

    refund along with interest awarded by court as interest compensation, no tds deducted as per court orders.
    builder failed to give possession, breach of contract.
    ? is interest compensation is taxable or not

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August 2021