Restriction in availment of input tax credit (ITC) in terms of sub-rule (4) of rule 36 of CGST Rules, 2017 (i.e. 80-20 Rule).

Reference:- Circular No. 123/42/2019– Dt. 11-11-2019, in regards to the clarification on availment of ITC from Current Month

For your ease of understanding, we summarised the same circular as follows; 

Particulars Remarks
Whether Common Portal Restrict the Credit or Not? No, Assessee is required to Calculate and Declare the same on Self-Assessment Basis
Whether All Invoices or Debit Notes Covered Under this Rule? No, Only Those Invoices which are required to upload by the Supplier and Credit of the same is availed after 09-10-2019.

Means, ITC i.r.t. Taxes Paid on Imports, RCM, ISD Credit Notes, etc not covered under this rule.

Further, Invoices or Debit Notes on which Credit is already availed upto 09-10-2019 are also outside from the purview of this rule.

Whether the Restriction is applied party-wise or on the consolidated amount? The restriction is applied on all the total eligible Credit basis.

Means, Invoices that are not eligible for ITC [example supply covered u/s. 17(5)] would not be covered in the calculation of 20% of eligible credit.

When to Check Form GSTR-2A for Calculating ITC Amount Date on which Tax Liability is calculated.
What amount of ITC a registered person can avail in GSTR-3B. As per Rule 36(4), ITC of the Invoices which are not reflecting in the GSTR-2A, shall be 20% of the eligible credit reflecting in GSTR-2A.

Lets Understand the same with the Illustration given below the table.

When The taxpayer can claim Balance ITC? When the Same Invoices Reflected in the GSTR-02A of the Taxpayer.

In the following illustrations, assume a taxpayer “R” receives 10 invoices involving ITC of Rs. 1 Lac, from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov 2019.

Case Details of Supplier Invoices, viz. eligible for ITC, has been furnished by Supplier 20% of eligible credit for Invoice not uploaded by supplier Net Eligible ITC to be taken in GSTR-3B to be filed for M/o. Oct-2019
1 8 Invoices, with ITC of Rs. 60,000/- Rs. 12,000/- Rs. 72,000/-
2 4 Invoices, with ITC of Rs. 50,000/- Rs. 10,000/- Rs. 60,000/-
3 6 Invoices, with ITC of Rs. 70,000/- Rs. 14,000/- Rs. 84,000/-
4 9 Invoices, with ITC of Rs. 95,000/- Rs. 19,000/- Rs. 1,00,000/- (i.e. Rs. 95,000/- + Rs. 5,000/-*)

* Net Eligible ITC (Incl. the additional amount of ITC availed) shall not exceed the total eligible ITC.

So, what your accounts team need to do:-  we request you to please consider the following from the Current Month at the time or before the Filing of GSTR-3B, to avoid Interest, Penalty and litigation in the future;

  • Be Sure ITC Availed only as per the Above Rule.
  • Be Sure Invoices against which ITC is Availed is Reflecting in GSTR-2A.
  • Be Sure Un-Eligible Credit should not be considered at the time of calculation of 20% as per Rule 36(4).

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Rohit Kapoor (RK) being professional and having experience of more than 10 Years in the filed of Taxation, Management, Law, Accounts, Audits, NGOs, Marketing and Information Technology. Till date he is associated with many of the organisation and on the strategy & executive board of many Organis View Full Profile

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One Comment

  1. Sathya says:

    It will greatly affect our cash flow. All our creditors are quarterly filers. How can we expect the ITC credit for the month of october. Have to pay all gst now and take the credit during the month of December that too we dont know how is it feasible, with different GSTR 1 due dates. things going more complicated.

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