Dont Ignore 20% Input Tax Credit Rule Which Can Block Your 100% Credit

input tax credit rule

On 9th October, 2019, various notifications were issued by the CBIC. One such notification was Notification number 49/2019, through which CGST Rules, 2017 were sought to be amended. One such amendment was with respect to insertion of Sub-rule (4) to Rule 36 of the CGST Rules.

The newly added Sub-rule states that –
“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.”

Analysis

Through this sub-rule, restriction is placed on total input tax credit that can be availed by a registered taxpayer. A registered taxpayer shall be able to avail provisional credit only 20% of total input tax credit available through GSTR 2A i.e. 20% of input tax credit uploaded by the supplier.

Any excess credit in excess of 20% available to the registered taxpayer cannot be availed by him. Thus, maximum input tax credit available shall be total input tax credit available as per GSTR 2A plus 20% of total input tax credit available as per GSTR 2A.

This sub-rule overrides the press release where it was stated that input tax credit may be availed on self-assessment basis irrespective of details available in GSTR 2A.

Examples

1

Mr. X has the following details for the month of October, 2019.

Total input tax credit available as per books of accounts is Rs 100,000 whereas as per GSTR 2A is Rs. 70,000. Input tax credit not uploaded by supplier Rs. 30,000.

Sr. No

Particulars

Amount (Rs.)

1

Total Input tax credit available as per books of accounts

100,000

2

Total input tax credit available as per GSTR 2A

70,000

3

Provisional credit available – 20% (20% of 70,000)

14,000

4

Total input tax credit that can be availed for October, 2019 (2+3)

84,000

5

Input tax credit that cannot be availed in October, 2019 (1-4)

16,000

Rs. 16,000 shall not be available for credit.

Before introduction of this sub-rule, a registered taxpayer could claim 100% input tax credit available to him irrespective of credit available in GSTR 2A i.e. he could claim Rs. 100,000 as input tax credit

2

Mr. AB has the following details for the month of October, 2019.

Total input tax credit available as per books of accounts is Rs 100,000 whereas as per GSTR 2A is Rs. 88,000. Input tax credit not uploaded by supplier Rs. 12,000.

Sr. No

Particulars

Amount (Rs.)

1

Total Input tax credit available as per books of accounts

100,000

2

Total input tax credit available as per GSTR 2A

90,000

3

Provisional credit available – 20% (20% of 70,000)

18,000

4

Total input tax credit not uploaded by supplier

10,000

5

Input tax credit that can be availed in October, 2019 (Lower of (1) or (2+3))

100,000

Note - Input tax credit as per GSTR 2A and provisional credit should not exceed total input tax credit available as per books of accounts. (Amount in books of accounts assumed after making all entries as per GSTR 2A)

One query that needs to be answered here is whether 20% provisional shall be calculated only on eligible input tax credit or ineligible input tax credit shall also be included in the same.

Well, in my opinion, 20% provisional input tax credit shall be calculated only on eligible credit and ineligible input tax credit shall be excluded.

3

In Example 1, Eligible input tax credit as per GSTR 2A is Rs. 65,000. Let us see how this will be accounted for availing total input tax credit.

Sr. No

Particulars

Amount (Rs.)

1

Total Input tax credit available as per books of accounts

100,000

2

Total input tax credit available as per GSTR 2A

70,000

3

Total ineligible input tax credit as per GSTR 2A

5,000

4

Eligible ITC as per GSTR 2A (2-3)

65,000

5

Provisional credit available – 20% (20% of 65,000)

13,500

6

Total input tax credit that can be availed for October, 2019 (4+5)

83,500

7

Input tax credit that cannot be availed in October, 2019 (1-6)

16,500

Impact of the Amendment

Before amendment of Rule 36 of CGST Rules, 2019, a registered taxpayer could avail 100% input tax credit on purchases irrespective of the fact it was reflected in GSTR 2A or not. Going forward, this shall not be possible. This will result in excess pay-out of tax, thereby affecting his cash flow and working capital.

In case of mismatch of details, supplier and customer relations may get affected due to involvement of monetary issues

In case of small traders where data is not properly maintained, reconciling data will become difficult, thereby impacting input tax credit availed.

Issue that require clarification

  • Where a supplier files his returns quarterly, reconciliation of such invoices will become difficult. It will also result in delayed input tax credit availment and blockage of funds of 2 months. Clarification in respect of treatment of such cases is required.

What needs to be Done?

It becomes necessary for a registered taxpayer whether big or small to maintain proper books of accounts to enable reconciliation


Reconciliation of GSTR 2A with purchases / expenses as per books of accounts should be done before filing GSTR 3B

Intimation shall be sent defaulting suppliers to upload details in their GSTR 1 and the same should be regularly tracked.

How will GSTHero help?


GSTHero’s GSTR 2A reconciliation helps you not only identify defaulting suppliers but also enable you to directly send mails to such defaulting suppliers. It also allows you to take action on various mismatch or missing entries that are identified during reconciliation. Also, various reports like GSTR 2A, GSTR 2A vs GSTR 3B, etc are available on GSTHero.

Chartered Accountant | Website

CA Sugandh Jain Parmar is a practicing Chartered Accountant with an experience of over 4 years.

Having associated with one of the Big 4 audit firms in India for 2 years, she has knowledge on internal audit and internal financial controls.

Currently, her domain specialization includes providing GST consultancy and advisory services.

Her articles focus on balancing information and in-depth information on GST related topics.

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