ITC is one of the most crucial aspect of GST and Rule 36(4) was very crucial aspect of ITC. One needs to understand the practicality of this rule. Accurate provision ITC management is now necessity to avoid further actions from GST department.
Read this full article and understand as to how it is important.
Understanding 5% Provisional ITC Rule
Rule 36(4), a newly introduced rule, says that, the taxpayer can avail the Input tax credit of 105% of credit reflecting under GSTR-2A.
The taxpayer cannot claim the (provisional ITC) credit of more than 105% of credit reflecting under GSTR-2A.
Previously, full credit as per books was allowed. But as the public stated mis-utilising the leniency of government, it had to make the law more stringent.
In that situation, government started imposing restriction on usage of credit in phased manner
Notification No. | % on ITC appearing in GSTR-2A | Effective from (Date) |
|---|---|---|
49/2019 Dated 09/10/2019 | 20% | 01/10/2019 |
75/2019 Dated 26/12/2019 | 10% | 01/01/2020 |
94/2020 Dated 22/12/2020 | 5% | 01/01/2021 |
However, this 5% provision ITC rule is not applicable to following:
- Import of Goods
- Input Service Distributors
- Reverse Charge Mechanism
Government introduces new law to generate better revenue. But due to various general or specific reasons, it keeps on amending it.
GST law is based on matching concept. All the invoices will be uploaded on portal, and the invoices that are not uploaded will not be eligible for credit.
However, since some taxpayers fail to file their returns on time, government gave some relaxation by providing 5% extra availment of provisional ITC, over and above GSTR-2A.
Practical Implementation of 5% Provision ITC Rule 36 (4) CGST ACT 2017 - With 3 Examples
1
Previously, there were two sets of data for details of, inward supplies, viz., as per GST portal and as per books, and they often used to be same.
But after introduction of 5% rule, taxpayer needs to maintain 3 sets of data:
- As per books
- As per GSTR-2A
- As per total credit actually availed as per Rule 36(4).
This made the data maintenance more complex. Let us understand this with the help of this illustration.
Example :
Before introduction of Rule 36(4):
Period | ITC as per GSTR-2A | ITC as per Books | ITC availed under GSTR-3B |
|---|---|---|---|
January | 80,000 | 1,00,000 | 1,00,000 |
February | 65,000 | 70,000 | 70,000 |
March | 30,000 | 38,000 | 38,000 |
April | 1,00,000 | 1,07,000 | 1,07,000 |
May | 70,000 | 80,000 | 80,000 |
June | 80,000 | 80,000 | 80,000 |
July | 50,000 | 75,000 | 75,000 |
Total | 4,75,000 | 5,50,000 | 5,50,000 |
We can see in the above table, that ITC as per GSTR-2A and as per books are different, but the taxpayer availed the credit as per his records.
As he is not required to upload invoice wise details, he availed full credit. This way there was no complication for next month.
He will simply go as per books and take the credit.
He can also go as per GSTR-2A and there will be no problem in maintenance of data.
After introduction of Rule 36(4):
Period | ITC as per GSTR-2A | ITC as per Books | ITC availed under GSTR-3B (105% of GSTR-2A) |
|---|---|---|---|
January | 80,000 | 1,00,000 | 84,000 |
February | 65,000 | 70,000 | 68,250 |
March | 30,000 | 38,000 | 31,500 |
April | 1,00,000 | 1,07,000 | 1,05,000 |
May | 70,000 | 80,000 | 73,500 |
June | 80,000 | 80,000 | 84,000 |
July | 50,000 | 75,000 | 52,500 |
Total | 4,75,000 | 5,50,000 | 4,98,750 |
If the taxpayer strictly goes as per GSTR-2A, there will be absolutely no problem in data keeping and credit to be taken for next month.
But if he goes as per 5% ITC rule, then he will have to keep proper record of every month so that no confusion arises as to which credit is already taken and which is not.
2
If we compare both the tables, we will find that earlier the taxpayer was entitled for full credit as per books, but now, he can avail only 105% of GSTR-2A.
This may lead to shortage of availment of credit.
Balance amount which could have been utilised from Input Tax Credit, will now be borne by taxpayer in cash and then blockage of working capital will happen.
Example :
In the above table (no. 2), we can see that ITC as per GSTR-2A in the month of January was 80000, and actually, i.e., as per books, it was 100000.
The tax payer was entitled for credit of 84000 only. Thus, there is blockage of 16000 (100000-84000).
The credit which is rightly belonging to him, cannot be claimed by him and he will have to pay from his own pocket.
3
If the suppliers are quarterly filers under QRMP scheme, they will upload the details every quarter.
So, the inward supply received from such suppliers will not reflect in GSTR-2A.
The recipient will not be able to claim it till the time supplier uploads it. He will have to wait for that much amount of time.
4
4)During the month of February 2020 to August 2020, due to Covid-19, tax payers were allowed to take full Input Tax Credit under GST.
ITC Rule 36(4) was exempted for that period. But from September onwards, ITC Rule 36(4) will be applicable retrospectively from February 2020 onwards.
Let us understand this through following illustration:
Example :
During January to December 20, it was 10% rule, which means net ITC plus 10% can be claimed in that period.
But due to COVID, full credit was allowed.
But the excess credit over 110% of Credit showing under GSTR-2A, availed during that period has to be reversed while filing return for the month of September.
Have a look at this table:
Period | ITC as per Books | ITC as per GSTR-2A | ITC as per Rule 36(4) | ITC Allowed | Excess ITC Claimed |
|---|---|---|---|---|---|
Feb to Aug | 5,00,000 | 3,00,000 | 330000 | 5,00,000 | 1,70,000 |
Sept | 2,00,000 | 1,80,000 | 198000 | 28000(198000-170000) | NA |
Here we can see that credit as per rule 36(4) for the period Feb to Aug was 330000, but because of the exemption available, the taxpayer was allowed to claim 500000, i.e., 170000 extra.
But this exemption was only for that period and was to be reversed in the month of September.
Therefore, in the month of September, credit as per books was 200000, as per GSTR-2A was 180000, as per Rule 36(4) was 198000, but since extra credit was availed during Feb to Sept of 170000, it was required to be reduced from 198000.
Claim upto 100% Input Tax Credit
Easiest GSTR 2B Reconciliation With Reverse ERP Integration