Input Tax Credit restriction – Rule 36(4) of CGST Rules, 2017 inserted vide Notification No. 49/2019 dated 09th Oct, 2019 and it was made applicable w.e.f. 09th Oct, 2019.

Relevant extract of said notification is reproduced as under: –

In the said rules, in rule 36, after sub-rule (3), the following sub-rule shall be inserted, namely: –

“(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.”.

– This is very significant to understand the provisions of newly inserted rule 36(4) of CGST Rules, 2017. For this purpose, information mandatorily required are as under:

  • Total invoices or debit notes in respect of eligible ITC for a tax period.
  • Detail of invoices or debit notes reflected in GSTR-2A for a tax period.

– For better understanding we have to first go through the provisions of Section 37(1) of CGST Act, 2017.

  • Every registered person, other than
    • An Input Service Distributor,
    • A non-resident person and
    • A person paying tax
      • U/s 10 (under Composition Scheme)
      • U/s 51 (case of TDS)
      • U/s 52 (case of TCS)

Shall furnish the detail of “outward supplies” in form GSTR-1 on or before 10th of the succeeding the tax period.

Further, detail reflected in GSTR-1 shall be auto populated in GSRT-2A of the recipients of the supply.

– Meaning of “eligible credit”: –

  • C1=T-(T1-T2-T3)
  • Means = Total input tax credit – input and input services intended to be used “exclusively” for non-business purposes – input and input services intended to be used “exclusively” for making exempted supplies – block credit (Sec. 17(5)).

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– The provisions of rule 36(4) of CGST Rules, 2017 are discussed herein below: –

  • ITC to be availed in respect of invoices or debit notes, which are not uploaded by the suppliers in GSTR-1, it shall not exceed 20% of “eligible credit” available in respect of uploaded invoices or debit notes in GSTR-1 of suppliers.
  • Every tax payer shall be entitled to 1.2 times of eligible credit in respect of invoices or debit notes reflected in GSRT-2A, however, it shall not exceed the total eligible credit in respect of invoices or debit notes hold by the tax payer.
  • Input tax credit of invoices or debit notes which are not reflected in GSTR-2A shall be available 20% of eligible credit in respect of invoices or debit notes reflected in GSTR-2A.
  • It becomes clear that said restriction of ITC shall be applicable on outward supplies made by the suppliers.
  • Full credit of ITC may be availed on IGST paid on Import of Goods or Services, ITC on inwards supplies liable to RCM (subject to the conditions of eligibility of ITC) and credit received from ISD as the same don’t come under the purview of section 37(1) of CGST Act, 2017.
  • Registered person may avail the full credit of ITC when eligible ITC to the extent of 83.33% is reflected in GSTR-2A for a tax period.
  • Said ITC restriction is not supplier wise and calculation is to be made on consolidated basis. However, ITC in respect of T1, T2, T3 and T4 shall be determined by the tax payer at the invoice level to calculate the eligible credit.
  • After introduction of Rule 36(4), GSRT-2A for a tax period shall become the basic document for calculating the Input Tax Credit and it is required to be reviewed from time to time till it doesn’t exceed 83.33% of total eligible ITC.
  • Balance ITC may be claimed by the tax payer in any of the succeeding month subject to the details of requisite invoices are uploaded by the suppliers.

Example 1: – In the month of Oct, M/s. LNG has 50 invoices (for inward supplies of Goods or Services) of ITC amounting Rs.5 lacs from various suppliers and same is the eligible credit. Further, M/s. LNG provided only taxable supplies and no ITC pertains to the non-business activities.

Case -1: – Invoices are uploaded by suppliers ITC amounting to Rs.3 lacs in Oct, Rs.1 Lac in Nov and Rs.0.50 lac in Dec.

Case -2: – Invoices are uploaded by suppliers ITC amounting to Rs.3.50 lacs in Oct, Rs.0.50 Lac in Nov and Rs.1 lac in Dec.

Case -3: – Invoices are uploaded by suppliers ITC amounting to Rs.4.25 lacs

Solution: –

S.No. Particulars Case -1 Case -2 Case -3
1 Eligible ITC reflected in GSRT-2A Rs.3,00,000/- Rs.3,50,000/- Rs.4,25,000/-
2 20% of eligible ITC Rs.60,000/- Rs.70,000/- Rs.85,000/-
3 = 1+2 Total ITC to be taken in GSTR-3B in Oct Rs.3,60,000/- Rs.4,20,000/- Rs.5,10,000/- but limited to Rs.5,00,000/-
4 ITC relevant to the m/o Oct to be taken in GSTR-3B in Nov Rs.1,20,000/- ((1.2*(3+1)-3.6)) Rs. 60,000/- ((1.2*(3.5+0.5)-4.2)) NIL
5 ITC relevant to the m/o Oct to be taken in GSTR-3B in Dec Rs. 20,000/- Rs. 20,000/- NIL
6 Total Credit to be availed (3+4+5) Rs.5,00,000/- Rs.5,00,000/- Rs.5,00,000/-

Example: 2- In the month of Oct, M/s. LNG has 100 invoices (for inward supplies of Goods or Services) of ITC amounting to Rs.10 lacs from various suppliers. Further, M/s. LNG has provided both taxable & exempted suppliers.

ITC to be reversed under rule 42 of CGST Rules, 2017 is Rs.0.35 lacs and ineligible credit of Rs.1.20 lacs u/s 17(5).

In this situation, Rs.8,80,000/- is eligible credit and Rs. 35,000/- ITC to be reversed. Hence, net ITC to be availed is Rs.8,45,000/-

Case -1: – Invoices are uploaded by suppliers ITC amounting to Rs.6 lacs (Rs.0.60 lac ineligible) in Oct, Rs.1.50 Lac (Rs.0.25 lac ineligible) in Nov and Rs.1.5 lac (Rs.0.15 lac ineligible) in Dec.

Case -2: – Invoices are uploaded by suppliers ITC amounting to Rs.7 lacs (Rs.0.70 lac ineligible) in Oct, Rs.0.90 Lac in Nov (Rs.0.20 lac ineligible) and Rs.2 lacs (Rs.0.30 lac ineligible) in Dec.

Case -3: – Invoices are uploaded by suppliers ITC amounting to Rs.8.50 lacs in Oct (Rs.1.00 lac ineligible)

Solution: –

S.No. Particulars Case -1 Case -2 Case -3
1 Eligible ITC reflected in GSRT-2A less ineligible Rs.5,40,000/-

(6.00 – 0.60)

Rs.6,30,000/-

(7.00 – 0.70)

Rs.7,50,000/-

(8.50 – 1.00)

2 20% of eligible ITC Rs.108,000/- Rs.126,000/- Rs.150,000/-
3 ITC to be reversed u/r 42 Rs.35,000/- Rs.35,000/- Rs.35,000/-
4 = 1+2-3 Total ITC to be taken in GSTR-3B in Oct-19 Rs.6,13,000/- Rs.7,21,000/- Rs.8,65,000/- but limited to Rs.8,45,000/-
4 ITC relevant to the m/o Oct-19 to be taken in GSTR-3B in Nov-19 Rs.1,85,000/-

((1.20*(5.40+(1.50-0.25))-6.13))

Rs.1,19,000/-

((1.20*(6.30+(0.90-0.20))-7.21))

NIL
5 ITC relevant to the m/o Oct-19 to be taken in GSTR-3B in Dec-19 Rs. 47,000/-

(8.45-6.13-1.85)

Rs. 5,000/-

(8.45-7.21-1.19)

NIL
6 Total Credit to be availed (4+5+6) Rs.8,45,000/- Rs.8,45,000/- Rs.8,45,000/-

Author can be reached: – LNG & Associates, Gurugram, calalitgupta@gmail.com , 9953307025

Disclaimer: -Views expressed in the Article are the personal views of the Author based on his interpretation of Law. Views expressed should not be construed as professional advice or legal opinion. Article needs to be revised and revisited on any clarifications, circulars or notifications released after the date of article. The author will not be responsible for any error, omission, commission and result of any action taken by participant or anyone on the basis of this article.

Author Bio

Qualification: CA in Practice
Company: LNG & Associates
Location: GURGAON, Haryana, IN
Member Since: 20 Nov 2019 | Total Posts: 2
Myself CA. Lalit Gupta, Partner at M/s. LNG & Associates, Chartered Accountants. I am in Practice since last 5 years. View Full Profile

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6 Comments

  1. hiteshkansara says:

    Now as per due date supplier has not filed the GSTR-1 but he has filed late GSTR-1 with late fees now at the time of filing our GSTR 3 B itc is not reflected in our GSTR2 A but we have claim 20% ITC , now when we have to file further month GSTR 3B at the time it shows full ITC so we have to take balance is it ok so it is duty on receipeient part to check our purchases on supplier invoices also is it correct , pl suggest same to be check in case of credit notes and debit notes on various transactions

  2. Rakesh S says:

    Sir,

    While filing returns in November by mistake I updated amount in IGST column were I don’t have any transaction through IGST.

    But the same I have reversed in month of January 2020.

    Now I revised the notice and they telling to pay penalty. Is this liable or how it is please help me sir.

  3. rakshit.jain says:

    Can we take the ITC of bills uploaded by the supplier and the same is showing in the GSTR 2A, in Counter Party Submit Status it is showing as- NO.

    1. CALALITGUPTA says:

      If counter party submit status No, it shows that these bills either don’t pertain to recipient of supplies or not accepted to the recipient of supplies. In this situation, these bills uploaded by suppliers do not become part of ITC. Hence you can’t take credit of the same.

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