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