As per recent notification no. 49/2019 central tax dated 09/10/2019 ITC to be availed by a registered person can-not be more than below:-
1. 100% of eligible ITC appearing in GSTR-2A and;
2. 20% of eligible ITC appearing in GSTR-2A in respect of invoices/debit notes not reflecting in GSTR-2A.
3. Total of 1 & 2 should not exceed total of ITC available as per actual invoices received during the tax period.
For better understanding we can say that total of ITC that can be availed during a particular tax period will be lower of following:-
(a) 120% of eligible ITC appearing in GSTR-2A; or
(b) ITC available as per invoices received during the period.
One should read carefully words used here are eligible ITC. This can be understood clearly with the help of following example:-
|(a) Total of ITC as per invoices and debit notes received during the tax period||100|
|(b) Total ITC reflecting in GSTR-2A||95|
|(c) Total eligible ITC out of 95 above||90|
|(d) ITC that can be availed as per N. No. 49/2019||100|
|i.e. lower of –|
|(i) 120% of 90||108|
|or (ii) Total ITC as per (a)||100|
Out of the total ITC reflecting on GSTR-2A portal we have to identify eligible ITC and perform calculations accordingly.
This was the general analysis of this notification. This notification has various adverse impacts on Indian economy which can be explained in below points:-
1. Encouraging imports and discouraging domestic purchases:-
A registered person can avail seamless credit in case of imports based on documents prescribed under GST law. However in case of domestic purchases GSTR-2A reconciliation needs to be performed for availment of credit. If supplier does not upload invoice in their GST returns or supplier does some mistake while filing their GST returns, purchaser needs to suffer. In this way, this notification supports imports rather than Make-In-India.
2. Supports recession rather supporting businesses:-
Suppose in the illustrative example given above total eligible ITC reflecting in GSTR-2A is Rs. 70. Consequently total eligible ITC for the month would be 120% of 70 i.e. Rs. 84. However ITC available as per invoices received during the month is Rs. 100. In the present case ITC to be deferred is Rs. 16. This will have direct impact on cash flow of every organisation which may lead to further slowdown in the economy.
3. Adverse impact on small entrepreneurs having turnover less than Rs. 1.5 Cr.:-
At present registered persons having turnover less than Rs. 1.5 cr. (hereinafter referred as small taxpayers) are required to file returns on quarterly basis. Also, these small taxpayers are required to file return by end of the month following the quarter for which return needs to be filed.
A registered person whose turnover is more than Rs. 1.5 cr. (hereinafter referred as large taxpayer) is required to file his GST returns on monthly basis. As a result of this notification, in certain cases, a large taxpayer might have to wait upto 4 months to avail credit.
Here is an example for you. Suppose Large Ltd. buys goods from Small Enteprises on 1st Oct, 2019. Large Ltd. can not avail ITC on this invoice till GSTR-1 is filed by Small Enterprise. Suppose Small Enterprise files GSTR-1 on 31st Jan, 2020. Now this invoice will start reflecting in GSTR-2A of Large Ltd. Therefore, Large Ltd. can avail ITC against this invoice in it’s Jan-2019 return which will be filed by 20th Feb, 2020. Hence, waiting period is more than four months in the present case. Rather waiting for 4 months every person would like to buy goods / take services from large taxpayers who would file return on monthly basis.
4. Increased compliance burden on businesses:-
Any contravention to the provisions of GST law may lead to penalties for any registered person. After this notification, to determine eligible ITC to be availed, every registered person must perform GSTR-2A reconciliation on monthly basis. This will lead to unnecessary compliance burden on all taxpayers which may cause money and efforts.
There are various doubts in the mind of taxpayers and consultants regarding practical aspects of this notification which need to be addressed.
We understand that these kind of notifications are brought into force to curb tax defaults. However, due care should be given to honest taxpayers while drafting provisions of law.
Disclaimer: Views expressed here are my personal views and are meant only for academic discussion. Readers are advised to obey the law and to seek opinion of their legal advisors before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.