Restriction On Availment Of ITC

Restriction On Availment Of ITC

CBIC had inserted a new sub rule (4) under rule 36 of Central Goods and Service Tax Rules 2017 vide Notification No. 49/2019-Central Tax dated 9th October 2019, now it has made certain changes in this notification as per decision taken in 38th  GST Council Meeting which is as follows :

“Input tax credit to the recipient in respect of invoices or debit notes that are not reflected in his Form GSTR-2A shall be restricted to 10 per cent of the eligible credit available in respect of invoices or debit notes reflected in his Form GSTR-2A.”

With effect from 1st January 2020, (Was earlier restricted to 20% for the period from 9th October 2019 to 31st December 2019)

Understanding:

As per the new sub rule (4) inserted in rule 36 of the Central Goods and Service Tax Rules, 2017, a taxpayer can claim Input Tax Credit (ITC) on Provisional Basis only to the extent of 10% of the eligible credit available in GSTR-2A. The ITC claim will not be allowed in full for any recipient if their suppliers have not furnished the details of their outward supplies.

There are lots of confusion going on in respect of calculation of 10 % of eligible credit.

Press release of 38th council meeting has simply said 10% of Eligible Credit available in GSTR-2A.

10 % of ITC Matched with GSTR-2A

10 % of ITC taken in Books

10 % of Eligible ITC Reflected in GSTR-2A

Example

Calculation of ITC that can be claimed

C ltd is filling its GSTR 3B for the month of January 2020.

ITC as per books ₹ 10, 00,000
ITC reflecting in GSTR 2A ₹   9, 00,000
Ineligible ITC in 2A ₹   1, 00,000
Eligible ITC in 2A ₹   8, 00,000
Total ITC that can be claimed ₹   8, 80,000

{8,00,000+80,000(10% * 8,00,000)}

Treatment of Balance ITC:

The balance ITC that has not been claimed as provisional ITC may be claimed in the succeeding months once details have been actually uploaded by the suppliers. If a supplier has only uploaded part of the pending invoices in a later period, the taxpayer will be able to claim ITC only proportional up to 10% of these pending invoices uploaded.

Important points to take care:

  • The restriction on 10% provisional credit will not be supplier-wise. It will be linked to the total eligible ITC from all suppliers based on details uploaded in the GSTR-2A.
  • Taxpayer can avail full ITC in terms of IGST paid on imports, credit that has been received from an Input Service Distributor (ISD), Credit of RCM.
  • Total ITC claimed including provisional ITC shall not exceed total Eligible ITC.

Background

Earlier all taxpayer used to claim ITC on lump sum basis in GSTR 3B table 4(a) without reconciling books with GSTR-2A. Due to this, many times taxpayer had claimed ITC even more then what was being reflected in GSTR-2A.

In nutshell, Taxpayer were claiming 100% of ITC (which were not being reflected in GSTR-2A) as provisional ITC and many taxpayers were not even filling their periodic GST Returns which were affecting Government’s revenue. Now due to the imposition of restriction, Taxpayer will insist their supplier to file their return so that the taxpayer can claim ITC

After the implementation of this rule, the provisional ITC amount will be restricted only to the extent of 10% of the eligible ITC value already reflected in the GSTR-2A for that period.

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