Input Tax Credit: According to Section 16 (1) of CGST Act, 2017: Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
New Rule Background:
In an effort to curb the menace of fake invoices and boost tax collections, the government has limited the input tax credit (ITC) to be availed by Assesse under Goods and Services Tax (GST) , in case the details have not been uploaded by the supplier.
Notification No. 49/2019 – Central Tax dated 9th October, 2019
In the said rules, in rule 36, after sub-rule (3), the following sub-rule shall be inserted, namely:-
“(4) 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.”
Hence, the above inserted sub-rule provides that the availment of ITC with respect to the invoices or debit notes not uploaded by the supplier cannot exceed 20% of the eligible credit in respect of invoices or debit notes which have been uploaded.
As an example, eligible ITC with respect to the invoices uploaded by the vendors is Rs. 10000. Actual eligible ITC based on the invoices received is Rs. 15000. The sub-rule provides that ITC of only Rs. 2000 (20% of Rs. 10000) can be claimed additionally. Hence total ITC which can be claimed would be Rs. 12000 and not Rs. 15000.
Major concern arising out of this amendment is that A dealer who intends to avail ITC will suffer a loss of 80% of ITC (credit being restricted to 20%), if the supplier does not upload the invoices. Non-uploading of invoices by the supplier may result in the mismatch between GSTR 2A and GSTR-1/GSTR 3B would result 80% loss of ITC. It will adversely impact the working capital requirements and also the bottom line of business.
This amendment requires a taxpayer availing input tax credit to do GSTR 2A reconciliation on a monthly basis and intimate the supplier to upload/correct invoices in his GSTR-1 on a monthly basis. In other words, all-out efforts should be made by the purchaser to force the supplier to upload the invoices issued by him.
Conclusion:
Prior to this notification, irrespective of the credit as reflected in GSTR 2A, credit was being claimed by the purchaser without any restriction, subject to fulfilment of other conditions. Now this credit has been restricted. This Notification requires regular monthly reconciliation of input tax credit with vendor reporting. It will increase in the compliance burden of an Assesse.
Needless to say that, the new Rule will have a heavy impact on cash flow of taxpayers due to less amount of total credit available to the taxpayers as compared to the period prior to this notification.
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