Is the government double cross on Input credit.

The Curious Transformation of seamless Input Tax Credit (ITC) Mechanism under GST: From Seamless to seamlessly Less

The concept of a seamless Input Tax Credit (ITC) mechanism under GST, which was promised by the government during its implementation, has seemingly turned into a more cumbersome process for claiming ITC. As time has progressed since July 01, 2017, availing ITC in the GST regime has become less smooth due to the introduction of additional procedures.

To avail ITC, businesses now need to follow a tedious process and adhere to specific procedures, such as:

- According to Section 16(2)(c) of the CGST Act, 2017, the ITC claimed in GSTR-3B must match the eligible ITC available in GSTR-2B.

- Circular 170 requires taxpayers to disclose the full ITC available in GSTR-2B in one column of GSTR-3B and then reverse the some value of ITC not accounted for in their books to ensure alignment.

- The introduction of new Rule 88D of the CGST Rules, 2017, mandates that if a person claims excess ITC beyond the percentage prescribed in GSTR-2B, they must explain this to the tax officer by filing a reply in form DRC-01C.

Additionally, businesses need to repeatedly explain the ITC claim during various stages:

- While filing GSTR-9, taxpayers need to reconcile with the value of GSTR -2B as per Table 8 of GSTR-9.
- During the scrutiny of returns, if selected for scrutiny.
- In case of Department GST Audit/Assessment from the department.

The above processes have made the once "seamless credit" system now "less" so. Instead of introducing monthly verifications, the government could consider a yearly review of variance between GSTR-2B and GSTR-3B after November 30. Taxpayers are generally cautious about any excess or short credit compared to GSTR-2B. If excess ITC is availed, businesses can rectify the situation and return the amount with interest, which would save time and effort for both the taxpayers and the government.