Restriction on availment of Input Tax Credit (ITC) w.e.f Oct 2019

The CBDT vide its Notification No 49/2019 has inserted a new rule – Rule 36(4) in Central Goods and Services Tax Rules,2017.

The New Rule is as follows :-

“ (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. ”

Earlier Position of availment of ITC (before introduction of this Rule)

The Input tax Credit (ITC) on inward supplies were provisionally allowed to be claimed irrespective of the fact whether the supplier has uploaded and paid the taxes on those supplies.

(i.e.,) You can claim the Input Tax Credit (ITC) even if your supplier has not filed his GST Returns showing supplies to you and paid the taxes on the same. You got some time to check and follow up with your supplier to make him declare the invoice relating to you.

Present Position after introduction of this New Rule 36(4)

The Input Tax credit which is appearing in your GSTR 2A (Invoices uploaded by your supplier) only can be claimed in your GSTR 3B as Input Tax credit.

In respect of Invoices /Supplies received by you, but the same is not appearning in GSTR 2A (Invoices not uploaded by your supplier), you can claim ITC only to the extent of 20% on Invoices uploaded by the suppliers.

CaseITC as per Books (Rs.)ITC as per GSTR 2A (Rs.)ITC that can be availed in GSTR 3B(Rs.)
110,00,0006,00,0007,20,000 (6L as appearing in GSTR 2A + Rs. 1.2L -20% of 6 L)
210,00,0007,00,0008,40,000 (7 L as appearing in GSTR 2A + Rs. 1.4L – 20% of 7L)
310,00,0008,50,00010,00,000 (8.5 L + 1.5L (1.7L which is 20% of 8.5 Lakhs restricted to 1.5L since total ITC is 10 Lakhs)

Note :-  To claim the entire ITC of Rs. 10 Lakhs, the minimum amount that should have been uploaded by your supplier should be Rs. 8.33 Lakhs (10 Lakhs / 1.2)

Other Important Points to be Noted

  • This restriction is applicable only in respect of Invoices,Debit-notes, which are required to be uploaded by the suppliers.
  • Full ITC can be availed in respect of IGST on Imports, RCM & Credit received from ISD (Input Service Distributors)
  • The other eligible conditions for claim of ITC should be taken care to claim the ITC.
  • The new restriction u/s. 36(4) will be applicable only in respect of invoices/debit Notes on which credit is availed after 9th Oct 2019.
  • For calculating the 20% eligibility, only eligible ITC to be taken. For example, Blocked credits under section 17(5) should not be considered for calculating 20% of the eligible credit available.
  • Credit Matching is a continuous exercise & GSTR 2A is a cumulative or year-to-date document. Ensure that this credit matching exercise is carried for the cumulative value of credits appearing in GSTR 2A after excluding credits that have already been taken up to the previous month.
  • If you are purchasing from a SME dealer (with Turnover less than 1.5 Crores), since he files his GSTR 1 on Quarterly basis, you have to wait till the quarter end to avail your ITC from such supplies. If your major portion of your purchases is from SMEs, you stand to loose because of this provision.
  • On the other hand, if you are a supplier to Large corporate houses & if you are a SME taxpayer, the Large corporate houses may prefer purchasing from dealers making monthly returns.(or) They may restrict payment of your invoice amount only to the taxable value portion of the Invoice ( and not the GST amount) which may lead to working capital problems for the SME suppliers.
  • This is like a curtain raiser for the proposed new GST Returns which are going to be applicable w.e.f 1st Apr 2020 wherein you will be allowed to claim credit only if it is uploaded by the suppliers.(Subject to option of adding missing invoices)

The following notifications are appended herewith :

  • Notification No 49/2019 – Central Tax dtd 9th Oct 2019
  • Circular No 123/42/2019-GST dtd 11th Nov 2019

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