Recently, the Union Budget 2021, presented on 1st February 2021, has come up with the proposal of satisfaction of one more additional condition for availing Input Tax Credit under Goods and Services Tax (i.e., GST).

Accordingly, the provisions of section 16 of the Central Goods and Services Tax Act, 2017 covering eligibility and conditions for taking Input Tax Credit are proposed to be amended. The present article explains the new condition and effect thereon.

Basics of conditions for availing Input Tax Credit under GST

Provisions of section 16(1) of the CGST Act, 2017 clearly states that every person registered under GST is eligible to take Input Tax Credit on any supply of goods/ services or both which is used/ intended to be used in the course or furtherance of the business.

Notably, such availment of Input Tax Credit is subject to fulfilment of various conditions laid down under section 16(2). The said conditions are briefly explained hereunder-

  • The purchaser/ recipient should have received the goods/ services or both.
  • The purchaser/ recipient should have respective tax invoice/ debit note as issued by the supplier.
  • GST charged on such supply is paid to the Government (either by cash or utilizing Input Tax Credit) by the supplier of goods/ services or both.
  • The purchaser/ recipient should have furnished an appropriate return.

Additional condition imposed vide Budget 2021 for availing ITC

New sub-clause (aa) is inserted to section 16(2) of the Central Goods and Services Tax Act, 2017. The new sub-clause imposes following additional condition for availing Input Tax Credit

1. The details of a tax invoice or debit note issued by the registered supplier are electronically furnished by him by filing the statement of outward supplies i.e. Form GSTR-1; and

2. The details of the respective tax invoice or debit note should have been communicated by the supplier to the recipient in the prescribed manner.

In nut-shell, the supplier of the goods/ services or both should furnish the outward supplies details/ information in Form GSTR-1 and the same should be reflected in auto-populated return in Form GSTR-2A of the purchaser/ recipient.

However, the newly imposed condition for availing of Input Tax Credit hinders the basic purposes of introduction of GST which is the removal of the cascading effect of taxes vis-à-vis seamless flow of input tax credit. Notably, with the proposed amendment, the recipient/ purchaser is now made responsible to keep a track of the supplier making final tax payment to the government and reflecting the same in returns.

Effect of new condition imposed vide Budget 2021 on availing ITC

In order to avail the Input Tax Credit, keeping the new condition in mind, the recipient/ purchase is required to follow the below steps-

  • Input Tax Credit availed/ claimed in Form GSTR-3B should be pre-confirmed by credit auto-populated in Form GSTR-2A.
  • In case of any mismatch, contact the relevant supplier to upload the details of tax invoice/ debit note in Form GSTR-1.
  • Despite pointing out, if the supplier doesn’t upload the relevant details in Form GSTR-1, the recipient/ purchaser should take some strong steps like non-payment of an amount equal to Input Tax Credit

Consequently, if the proposed additional condition is not satisfied and the input tax credit is availed, then, the recipient/ purchaser will have to take the following steps-

  • Reverse the Input Tax Credit so availed;
  • Pay applicable interest and penalty (if any); and
  • Recover the amount equal to an ineligible input tax credit from the supplier.

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One Comment

  1. KOCHAR says:

    If the tax invoices for April to Sept 2020 are received in Feb.21, how to claim input as the same are not appearing in gstr2b.
    seller has already included the sales in respective periods but the invoices were not available with purchaser. practice of delayed issuance of invoices are followed among dealers dealing in agricultural goods like fertilizers, insecticides.
    kindly advice.

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