ITC under GST

Input Tax Credit under GST is the bedrock of the GST structure. Businesses should aim at using this feature wisely and avail maximum of eligible ITC under GST.

In this short article, we have discussed a few important pointers that businesses should follow to claim maximum eligible ITC in FY 2022.

The businesses must take utmost care to claim only the eligible Input Tax Credit and have a robust reconciliation mechanism in place to identify the errors & spot the defaulting suppliers.

Input Tax Credit in GST  & Main Pillars

When dealing with Input Tax Credit under GST, we frequently come across three terms; we like to call them the INVINCIBLES of Input Tax Credit in GST.

Following are the three pillars of the GST Input Tax Credit in India:

  • GSTR-2A
  • GSTR-2B
  • Purchase register of the business

Following is a quick snapshot of each entity.

1. GSTR-2A in GST

  • GSTR-2A under GST is a 'Purchase related’ tax return.
  • GSTR-2A is generated automatically by the GST portal for every registered business.
  • GSTR-2A gets generated based on other GST returns like GSTR-1, GSTR-5, GSTR-6, GSTR-7 & GSTR-8 filed by your Supplier.
  • GSTR-2A is a dynamic statement that gets updated every month.

2. GSTR-2B in GST

  • Generated monthly based on the GSTR-1 returns filed by his Supplier.
  • GSTR-2B is auto-populated based on the GSTR-1, GSTR-5, & GSTR-6 of the Supplier & GSTR-2A of the recipient.
  • Gets generated on the 12th of every month.
  • GSTR-2B is a detailed summary of all eligible & ineligible Input Tax Credit under GST for a given tax period.
  • Unlike GSTR-2A, GSTR-2B remains constant for a given tax period & CAN NOT be amended.
  • CBIC has repeatedly reiterated that GSTR-2B should be the definitive source to find the eligible ITC for the given month.

To learn more on GSTR-2B reconciliation, visit the link given here.

3. Purchase register

  • Purchase register of the business is the internal document that acts as a checkpoint for all the GST activities.
  • To claim eligible ITC under GST, GSTR-2B vs Purchase register reconciliation becomes essential.
  • Businesses must make it a routine activity to match & check every entry from their purchase register or existing ERP software against the ITC displayed in the monthly GSTR-2B.
  • GSTR-2B vs Purchase register reconciliation keeps the transactions transparent between the Supplier and the recipient.

Reconciling your GSTR-2B against your Purchase register will help businesses spot any errors and claim only the eligible ITC.

We advise using automation for any reconciliation under GST. This helps in eliminating errors and gives you a clean & 100% accurate reconciliation report.

GSTHero’s ITC reconciliation is a must-try!

7 Simple Steps to Claim Maximum Eligible ITC

It's not very difficult to keep track of all the eligible ITC and claim it to pay your outward GST liabilities.

Businesses need to follow a few simple steps to help them stay away from the defaulting GST suppliers and claim the maximum eligible GST Input Tax Credit.

Following are the simple steps you can follow:

  • Check the validity of every invoice you receive

Businesses scrutinize every detail printed on the receipt or invoice they receive.

Recently a huge scam of fake invoices was unearthed in Delhi by the GST officials.

Claiming of ITC based on the fake invoice may attract a GST audit by department and may also result in suspension or cancellation of your GST registration.

Hence, businesses must stay alert with the invoices they receive and should NOT indulge themselves into any activity that leads to claiming of ineligible ITC.

  • Check QR codes on invoices

A QR code comes embedded into the GST e-Invoice now.

Businesses must check this QR code as well on every e-invoice they receive from their Suppliers.

Businesses must ensure that this QR code is NOT damaged and easily readable with the QR code scanner on the GST portal.

All the purchase e-Invoices are expected to have a clearly printed QR code that can be easily scanned.

  • Reconciling invoice details against GSTR-2A

GSTR-2A is auto-generated & contains all the purchase-related transactions for the preceding month.

Businesses must reconcile the e-Invoices received from the suppliers with the entries available in the monthly GSTR-2A.

Note: An e-Invoice cancelled by the Supplier shall NOT reflect in the recipient’s GSTR-2A.

  • Reconciling invoice details against GSTR-2B

As mentioned in the earlier section, GSTR-2B is essential for claiming maximum & eligible Input Tax Credit.

Details of your purchases shall reflect in your GSTR-2B ONLY if your Supplier has filed his GSTR-1 correctly & on time corresponding to the purchase.

Businesses must check their GSTR-2B before claiming GST Input Tax Credit for the month, as GSTR-2B shall give you a final confirmation regarding the eligible ITC.

NOTE:

CBIC has repeatedly iterated that the taxpayers should look at the GSTR-2B as the authoritative & final source to find their eligible Input Tax Credit for the month.

  • Pay your vendors on time

Businesses are advised to make the payments to the vendors within six months from the date of purchase.

This practice shall help the businesses to claim the eligible ITC on time.

If a business has claimed ITC on any purchase whose payment is pending, then this has to be reversed in the next month.

To learn more on, ITC reversal read our dedicated blog.

If you have paid your Supplier & yet have claimed Input Tax Credit under GST on this transaction, this ITC must be reversed.

The businesses should complete their payment to the vendor well before the deadline to easily claim MAXIMUM eligible ITC.

  • Follow up with your defaulting vendors

It’s absolutely important for your Supplier to file his GSTR-1 accurately & before the due date.

This is essential because your GSTR-2B will be based on the GSTR-1 filed by your Supplier. Therefore, if your Supplier fails to file GSTR-1 on time, you shall not be able to claim ITC on the purchase you made from that defaulting Supplier.

To avoid this, businesses must follow up with the defaulting Supplier & ask them to file their GSTR-1 well before the due date.

Informing about this discrepancy to the Supplier shall compel him to file his GSTR-1 corresponding to your purchase & you shall be able to claim your eligible ITC in the succeeding month.

  • Keep Provisional ITC limit in check

While claiming ITC for a given month, businesses must keep the provisional ITC limit in check.

According to the Rule 36(4) of the CGST Act of 2017 the, provisional ITC MUST NOT exceed 5% of your total eligible ITC.

To learn more on Provisional ITC under GST, connect to our blog given in the link.

 Whenever the business avails provisional ITC for the months, it’s recommended that the business marks these invoices for future reference.

IMPORTANT UPDATE - CBIC scarps 5% Provisional ITC rule

Central Board of Indirect Taxes and Customs (CBIC) has notified that the taxpayers can not avail 5% Provisional Input Tax Credit w.e.f. 1st January 2022.

CBIC has notified that Sections 108109 and 113 to 122of the Finance Act of 2021 shall come into force from 1st January 2022.

According to the earlier provisions under Rule 36 sub-rule (4) of CGST Act of 2017, taxpayers could avail a provisional credit of 5% of eligible ITC reflected in their GSTR-2B.

To summarize

In this article, we have provided seven simple steps to help businesses claim maximum GST Input Tax Credit in FY 2022.

Manual reconciliation is a long process and is highly prone to errors.

GSTHero provides you with an automated GSTR-2B vs Purchase reconciliation tool that will give you a flawless reconciliation report.

A detailed reconciliation report will help businesses claim only the eligible & maximum Input Tax Credit under GST.

Stay updated; stay ahead!

Until the next time….

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Gaurav Yadav

About the author

Gaurav is an Engineer by training with a deep interest in Economics & Finance. He has been associated with the Fin-Tech industry for quite some time now. He writes for GSTHero for topics including GST Compliance, GST Structure, etc & aims to break down complicated technical jargon into simple terms for the taxpayers.

His expertise includes GST Laws, Corporate Finance & Macro-Economics.

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