Only 20 percent of the Provisional ITC is available as Credit

Last Updated On: Nov. 3, 2019, 11:10 p.m.
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Input Tax Credit is eligible only when it is credited to electronic credit ledger of taxable person.

Update in ITC 

The update has been proposed by Government in a case where there is a mismatch or details have not been uploaded by the suppliers, input tax claim will not exceed 20 percent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This is expected to have a significant impact on the cash flow of firms.

As per the CGST Rules, an input tax credit to be availed by a registered person, the details of which have not been uploaded by the suppliers, shall not exceed 20 percent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This means going forward, it will be mandatory for the buyers to match the ITC claimed with the details uploaded by the vendors.

This restriction will mean that the Companies need to monitor whether the suppliers are uploading their returns on a regular basis.


The notification states that after suspension of registration, businesses would be allowed to make taxable supplies, but not charge tax on supplies or issue a tax invoice. More importantly, GSTR-3B is to be treated as a return under Section 39 and hence, credit would need to be availed by 30 September of the following financial year.

 

Proper reconciliation of GSTR- 2A with books will now be critical to claim ITC.

Businesses will strive to reduce instances of no upload of invoices by sellers. They will have to reduce ineligible credit instances to within 20% of eligible credit.

Given there is no matching of invoices taking place, taxpayers have been filing GSTR 3B. Subsequently, GSTR 2A as a return was automatically generated for a taxpayer from his seller's GSTR-1. Any difference could be settled at a later date and there was no impact on what a taxpayer could claim as ITC in case there was a mismatch.

The notification states that after suspension of registration, businesses would be allowed to make taxable supplies, but not charge tax on supplies or issue a tax invoice. More importantly, GSTR-3B is to be treated as a return under Section 39 and hence, credit would need to be availed by 30 September of the following financial year.

Most companies are likely to feel the pinch of the amendment. The amendment has introduced another set of compliance on a monthly basis That companies would now also need to execute additional compliance of executing monthly reconciliation of credits vis-a-vis GSTR 2A; to ensure an ailment of unmatched credits only up to 20 percent of eligible credits reflecting in GSTR-2A.

The above new prescriptions may entail additional compliances for businesses; where these amendments are upheld by judicial forums. FORM GST ANX-1 will be made compulsory to be filed by large taxpayers (annual turnover more than Rs. 5 Crore), and it will replace the GSTR-1 return entirely. For small taxpayers, FORM GST ANX-1 will be implemented from January 2020, which will be for the quarter of October to December 2019.

Large taxpayers will continue to file the GSTR-3B during October and November 2019, after which they will have to have to start filing FORM GST RET-01, the main return in the new return which will need to be filed by the 20th of January 2020.

In the case of small taxpayers, they will need to stop filing GSTR-3B and start filing FORM GST PMT-08 from October 2019, which will be the form for self-declaration of taxes and the payment of the same. The plan is to phase out GSTR-3B from January 2020 onwards, by which all taxpayers shall be filing FORM GST RET-01.
 

We at Legalsuvidha have distinguished experts to save your Input tax credit. We are providing Input tax credit reconciliation and Vendor Mangement support for small businesses at a very nominal charge. You can opt for our Monthly or Quarterly reconciliation package as per the volume of B2B invoices.

 

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