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New Input tax credit rule under GST regime: CBIC

The Central Board of Indirect Taxes and Customs issued a notification on Wednesday amending the rules for putting the restriction on the claiming Input Tax Credit (ITC) under the Goods and Services Tax (GST).

The taxpayers have to upload invoices on the monthly basis (in GSTR – 1) to take the entire input tax credit (ITC) otherwise, the credit shall be restricted to 20% of the eligible credit.

Notification said “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 [in Form GSTR-1],”. 

One of the reasons for availing higher input tax credit was the mismatch between the GSTR 1 and GSTR 3B. This was also affecting the government’s revenue.

Now, after the new notification regarding Input tax credit, that Input tax credit claimed in GSTR 3B in respect of vendors who have not uploaded invoice details at GST portal will not exceed 20 percent of the total eligible credit.

On another side, it is said that it would block the cash flow of businesses and increase their compliance burden.

The new rules shall be called the Central Goods and Services Tax (Sixth Amendment) Rules, 2019, came into effect on October 9.

As per the current rules, taxpayers are supposed to reconcile their input tax credit at the time of annual returns. However, the deadline of filing annual returns has already been postponed many times in the first year of GST rollout 2017-18. This means that there was no restriction to claim.

Moreover, the taxpayer is required to file two return forms GSTR 1 (outward sales with tax liability) and GSTR 3B (summary returns with final tax payment) which are not auto-linked. Due to the independent returns, this could result in showing higher liability, claiming higher input tax credit and paying less tax in cash.

In other words, irrespective of the credit being visible in GSTR 2A (auto-generated return for purchases), the service recipient used to claim credit without any restriction subject to having the invoice copy and satisfying other conditions laid down under the law.

The government in August had extended the date for filing annual GST returns for 2017-18 and 20018-19 by three months to November 30, whereas the original deadline of filing these returns were December 31, 2018.

The deadlines were extended as the businesses and experts complained about the complex nature of filing the returns and reconciliation of audited accounts with the returns. Also, they were facing technical issues while filing and uploading of returns.

For instance, tax and legal consultants had said hundreds of amendments, notifications and circulars have made the GST Act very complex.

Author: Niranjan Reddy

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