Capping
of ITC to 20%: Analysis of CBIC Circular No.
123/42/2019– GST dated 11.11.2019
Introduction
The Central Government has inserted a new
sub-rule (4) to Rule 36 of CGST Rules, 2017 vide Notification No. 49/2019 –
Central Tax dated 09.10.2019. As per new rule 36 (4), the input tax credit
(ITC) in respect of invoices and credit note not uploaded by the supplier in
their respective GSTR-2A shall be capped to 20% of the eligible input tax
credit. Effectively, the registered person can claim entire ITC of amount
reflected in his GSTR-2A and up to 20% with regard to ITC not reflected in GSTR-2A.
Rule 36(4) inserted in the CGST Rules, 2017 reads as
below:
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 in their GSTR-1 under section 37(1), 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 section
37(1).
In the earlier article, I have tried to
analyze the notification, legal lacunas and practical aspects in implementing
the rule. There were lot of loose ends in the Notification no. 49/ 2019 (supra)
as many issues such as the method of calculating this 20% amount, the cut-off
date, whether 20% to be calculated supplier-wise or consolidated basis and so
on was left unanswered.
Therefore, CBIC has issued Circular No 123/42/2019-GST dated 11th November 2019 in order to
clarify all these aspects.
Synopisis of the Circular
1. The restriction is not imposed through the
common portal but it is the responsibility of the taxpayer that credit is
availed in terms of the said rule. Therefore, the availment of restricted
credit in terms of rule 36(4) of CGST Rules shall be done only on
self-assessment basis by the tax payers.
2. The restriction of availment of ITC is
imposed only only in respect of those invoices/debit notes which are to be uploaded in GSTR-1. Therefore,
the
restriction is not applicable for import, documents
issued for RCM, credit received from ISD provided other conditions in section
16 and 17 are satisfied.
3. The restriction will be applicable on
invoices/debit notes, on which ITC is availed after 9th October, 2019.
4. The 20% cap on the eligible Input Tax
Credit will not be calculated supplier- wise and GST payers can avail the input
tax credit on a consolidated basis every month. Further, it is clarified that
calculation has to be based on invoices eligible u/s 16 or 17. Accordingly,
those invoices on which ITC is not available under any of the provision would
not be considered for calculating 20% of the eligible ITC.
5. The 20% of the eligible ITC shall be
calculated on those invoices/debit note details of which are uploaded by the
supplier in Form GSTR-1 as on due date u/s 37(1) i.e. 11th of
succeeding month (for monthly tax payers) i.e. details of such invoices
available in Form GSTR-2A of the recipient as on the due date of filing of
GSTR-1 has to used for calculating 20% restriction.
6. The balance ITC may be claimed by the
taxpayer in any of the succeeding months provided details of requisite invoices
are uploaded by the suppliers. i.e. proportionate ITC can be claimed as and
when details of some invoices are uploaded by the suppliers until
details pertaining to invoices/debit note amounting to 83.33% of the total ITC
are uploaded by suppliers.
7. Once details pertaining to invoices/debit
note amounting to 83.33% of the total ITC are uploaded by suppliers, full ITC
in respect of that tax period can be taken.
Recommended
course of action for each month
1. The registered person has
to extract the ITC register each month from ERP and bifurcate ITC claimed on
account of import, RCM, ISD etc.
2. The remaining ITC has to
be reconciled with GSTR-2A (taken on 11th of succeeding month) and
compare the data with B2B, B2BA, CDNR, CRNRA
3. All the matched entries as per the above
step to be separated.
4. The unmatched ITC may be-
a. ITC reflected in books not available in GSTR-2A
b. ITC reflected in GSTR-2A
not in books (either ineligible credits or credit not pertaining to recipient)
5. Eligible ITC shall be lower of :
a. ITC as per step 2
b. 120% of matched invoices as per step 3
6. Total ITC to be taken in GSTR-3B = is ITC as computed in step
5 + ITC on account of import, RCM, ISD, etc.
Unmatched ITC
The registered
person has to be maintain a list of unmatched ITC for each month. Form GSTR-2A,
being dynamic, will get continuously updated. Therefore the balance credit (as
20% is taken provisionally) can be taken as and when such invoices are uploaded
by supplier. This exercise has to be calculated until 83.33% of total ITC of
particular tax period has been reflected in GSTR- 2A.
To illustrate,
Suppose in the month of October Mr.R has Rs.1,00,000 as total ITC. Suppose only
Rs. 70,000 is reflected in GSTR-2A as on 11th November, he can claim
only Rs.84,000 ( Rs.70,000 + 20% of Rs.70,000= Rs.14,000).
Suppose as on
11th December, ITC of Rs.10,000 is further uploaded by supplier,
Mr.R can avail only Rs.5,333 ( 10,000 * 16,000/30,000) being the proportionate
credit.
Suppose as on
11th January, further ITC of Rs.10,0000 is uploaded by supplier,
Mr.R can avail the entire balance credit of Rs.10,667.
Open Issues
1.
Undue workload- For every tax period,
separate reconciliation has to be prepared and list of unmatched entries has to
be identified. This unmatched entries for that particular tax period has to be
updated every month until 83.33% of total ITC for the particular month is
matched. i.e. In October, reconciliation is to be done. In November,
Reconciliation for November is to be done plus unmatched entries in October has
to be updated. This will go on and on...
2.
Delayed uploading of
GSTR-1 -
As per the circular, GSTR-2A as on due date of filing GSTR-1 i.e. 11th
of succeeding month is to be taken for reconciliation. Therefore, ITC on those
invoices uploaded suppliers who file GSTR-1 belatedly will not be available for
matching. Regular follow up has to be made with supplier after 5th
of succeeding month to ensure that they file GSTR-1 in time.
3.
Due date for generating
GSTR-2A – As
per the circular, GSTR-2A as on due date of filing GSTR-1 ie 11th of
succeeding month is to be taken for reconciliation. However, GSTR-2A being a
dynamic document will continuously get updated each time it is generated. Some
suppliers may upload invoices at 9:00 Am, some
at 12:00, some at 10 PM. Therefore, there is no standard time for downloading
GSTR-2A. Further, GSTR-2A does not have any date of download, which means if a
person is unable to download on 11th day of succeeding month say due
to system issue, he will not be download the same GSTR-2A again subsequently.
4.
Suppliers uploading on
quarterly basis – There will be delayed credit availment as taxpayers below Rs.
1.5 Cr file GSTR-1 on a quarterly basis. The details of such invoices will be
reflected in GSTR-2A only on the 31st day of the month succeeding
the quarter.
Conclusion
The new rule
36(4) cast a dual responsibility on each registered person. Firstly, upload the
details of his outward supplies in Form GSTR-1within 11th of
succeeding month so that his customers can enjoy the full ITC. Secondly, follow up with his supplier to make
sure he uploads the details within 11th day so that he can enjoy the
full ITC.
While the
circular has addressed many of the issues, some technical changes has to be
brought in the system considering the fact that GSTR-2A is highly dynamic.
It is best
recommended in the interest of all stakeholders that the Government defer the
ITC capping until the new return system is rolled out.
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