Introduction: CBIC vide notification number 49/2019 –CT dated 09.10.2019 made the amendment in CGST Rules, 2017. Through this notification, CBIC notifies the GSTR 2A reconciliation on monthly basis which leads to the blockage of credit or leads to outflow of the cash by not allowing the ITC exceeding the 20% of eligible credit of invoices or debit notes uploaded by supplier for the invoices or debit notes have not uploaded by supplier in his GSTR-1 by whatever reasons.

New provision inserted Rule 36(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.”

Author’s View;

  • Presently, all the taxpayers are availing the ITC through GSTR 3B without any reconciliation with the invoices uploaded by the suppliers in totality basis.
  • Eligible Credit Vs Ineligible Credit:
    • Credit restricted u/s 17(5): Ineligible Credit
    • Recipient deals only in providing the exempt supply: All credit is ineligible
    • Inward Supplies partly used for non-business purpose: Ineligible Credit
    • Inward Supplies partly used for exempt supply; Ineligible Credit
  • This provision shall be applicable for Oct’2019 tax period.
  • Practical Challenges:
    • Monthly reconciliation
    • Identification of Eligible Credit
    • Regular follow up with the suppliers
    • Regular updating of GSTR 2A includes the cases of amendment by supplier, quarterly return filers etc.
  • Manner of Reconciliation:
    • First identify the invoices or debit notes as reflected in GSTR 2A and separate them.
    • After separate them, following shall be pending to reconcile;
      • Invoices or debit notes reflecting in GSTR 2A but credit not availed in GSTR 3B either due to compliance of section 16 or invoices not related to taxpayer etc.
      • Invoices or debit notes for which ITC to be availed in GSTR 3B but invoices or debit notes are not reflecting in GSTR 2A.
  • This provision talk only about the second case as discussed in above point 2(2).
  • For second type of cases, eligible credit need to compute.
  • For computing the eligible credit, separate the invoices as found in GSTR 2A and thereafter identification of eligible credit on the invoices or debit notes that matches with GSTR 2A and then compute 20% of such eligible credit. This is the maximum credit which the taxpayer can avail for the invoices or debit notes as not reflecting in GSTR 2A.

Let us illustrate;

Particulars Amount
Invoices reflecting in GSTR 2A A 2,00,000/-
Debit notes as reflecting in GSTR 2A B    40,000/-
Credit notes as reflecting in GSTR 2A C    20,000/-
Total Credit as per GSTR 2A D=A-B-C 2,20,000/-
Invoices or debit notes that matches with GSTR 2A E 1,35,000/-
Invoices or debit notes found in GSTR 2A but credit can be availed in next tax periods in compliance with section 16 F 25,000/-
Invoices or debit notes not found in GSTR 2A but the invoices and goods received during tax periods (May be QTRLY filers etc.) G 60,000/-
Invoices or debit notes as reflecting in GSTR 2A but not related to taxpayer (Not eligible for credit) H 20,000/-
Total of (E+F+G+H) = (A+B) 2,40,000/-
Common ITC attributed to exempt supply out of E I 10,000/-
Credit restricted under section 17(5) out of E J 10,000/-
Credit attributed to non-business purpose out of E K 12,000/-
Credit attributed to used exclusively for exempt supply out of E L 13,000/-
Eligible Credit (E-I-J-K-L) M 90,000/-
20% of Eligible Credit (M*20%) N 18,000/-
Credit can be availed for point G or N, whichever is lower O 18,000/-
Total ITC can be availed (E+O) 1,53,000/-

Please note that regarding the credit note as referred in point no. C, Credit as referred in point no. F and H need the more clarification whether these shall be included or not while computing the eligible Credit .

Disclaimer : All reasonable care has been taken in preparing this article. I accept no responsibility for any error it may contain, whether caused by negligence, or otherwise or for any loss, however caused or sustained by the person relying on it. Any mistake, error or discrepancy noted by the reader may kindly be brought to the notice of the author and/ or publisher, so that suitable amendments may be made in the article. This document is not an offer, invitation or solicitation of any kind and is meant for reference purpose only.

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