10% GST ITC Calculation : New GST Rule of Input Tax Credit
GST is not easy. Since the implementation of GST, CBIC has made many amendments. It even gave a lot of clarifications to simplify the GST process. Also, it took steps for easy understanding or to make it better for overcoming the faced problems and difficulties. Through these steps the GST became Good and simple Tax for Government while on the other hand Gabbar Singh Tax for the taxpayers. This article deals with the New GST rule of 10% Input Tax Credit (ITC) in GST which has became a major problem in businesses now a days.
CBIC inserted a sub-rule (4) in rule 36 of Central Goods and Services Tax Rules, 2017 (“CGST Rules”) by way of Notification No. 49/2019-Central Tax which restricts Input Tax Credit by a certain percentage in case of invoices not found in GSTR 2A.
Notification No. 49/2019 Central Tax-sub-rule (4)-The said notification was issued earlier which says that “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 percent 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.”
CGST RULE 36(4): Rule 36 (4) states the limit of availment of ITC by the taxman in respect of invoices, debit notes which are not uploaded by their supplier in GSTR 1. In other words, it tells us how much percentage (%) of missing ITC of the invoices you can take which are not reflected in GSTR 2A.
The said notification again amended with new Notification. Notification No 75/2019 issued on 26th December 2019 restricts the ITC eligibility to 10% from 20%.
Eligible Input tax credit (ITC) means Tax paid at the time of purchase to supplier which is available as ITC.
Let understand the concept with an example:
|Particulars||Before any ITC rule||After 10% ITC Rule|
|Eligible ITC in purchase book (a)||1000||1000|
|Eligible ITC in GSTR 2A (b)||600||600|
|ITC that can be claimed provisionally (c)||400||60 (600*10%)|
|Total ITC can be claimed in GSTR-3B (d)= (b)+(c)||1000||660|
|ITC not allowed at present (e)= (a)-(d)||NIL||340|
After seeing the example above one will have a doubt that when we can get credit of remaining ITC or Rs.340, in this case? Like this there are many questions and doubts which arise from this notification. But before this let discuss about this new 10% GST ITC rule.
Why 10 % GST ITC rule is inserted?
Before this rule, a taxpayer can claim ITC without matching the GSTR-2A or even if the credit is not shown in GSTR-2A or uploaded by the supplier. Earlier, a taxpayer could claim credit on his/her self-declaration basis.
This new rule of 110% GST ITC calculation rule is inserted to stop incorrect input tax credit (ITC) claims after various frauds were found in past like-
- Fake invoices
- Wrong credit claim to save outward liability
- Invoices of physically non-existence businesses.
Government inserted this new rule of 10% GST ITC to save government revenue, by ensuring that the ITC is claimed by the recipient is “ELIGIBLE” (i.e. not taking ineligible ITC).
Further clarification on general issues given on this rule by CBIC:
- This rule is not applicable on Input tax credit (ITC) on import purchase, purchase from ISD, RCM purchases.
- This rule is not imposed supplier-wise. One should have to calculate 10% ITC on total basis.
- The amount of ITC to be claimed provisionally, on invoices or debit notes not uploaded, shall not exceed the actual ITC amount in books. For e.g. GSTR-2A reflects ITC of Rs.900 and in books eligible ITC is Rs.980 now the amount should be claim provisionally is Rs.80 (980-900) not Rs.90 (900*10%).
What a businessman should do?
- Find out Eligible ITC as per books:
- Make one column of eligible and another for ineligible in books.
- Receive goods or services by physical invoice only.
- Match the ITC with GSTR-2A:
- Download GSTR-2A from GST Portal.
- Find out Eligible ITC from GSTR-2A.
- Now match GSTR-2A with books and claim 10% ITC on missing invoices, if any.
Challenges or Problems in 10% GST ITC rule –
- It will Create pressure on taxpayers as it becomes necessary for them to reconcile regularly.
- It will also Increase the need of working capital requirement as taxpayer has to pay GST in cash despite having eligible ITC paid to the suppliers, if invoices are not reflected in GSTR-2A.
- Regular follow-up to suppliers for input tax credit not reflecting in GSTR-2A.
- Taxpayer has to learn reconciliation process, difference between eligible credit and ineligible credit, accessing GST portal for GSTR-2A as it changes frequently.
- Difficult to run a business for small taxpayers. Businessman will end up spending more time in reconciliation rather than doing their businesses.
- Operations of business affected as taxpayer has to be dependent on supplier or it can be said that now much of GST operations depend on suppliers compliance and how organized he is in filing GST Returns.
General questions or doubts:
QUESTION – What happens in case of claiming more than 110% of reflected ITC?
ANSWER- ITC could be said to be ineligible if vendor does not upload details in GSTR-1. ITC taken will need to be reversed along with interest at 24% .
QUESTION – When we get credit of remaining ITC?
ANSWER- Taxpayer can claim ITC in succeeding month when supplier uploads the remaining invoices.
QUESTION – What if the supplier is filling return quarterly?
ANSWER- There is no clarification for quarterly filers in the Rule or the circular. Two option (my point of view):
- If sure about supplier- take credit.
- If not sure – take credit after reflected quarterly.
QUESTION – Supplier file late return and can I claim ITC 110%?
ANSWER- If supplier file return after due date of GSTR-3B and we can claim ITC on the basis of invoices that are not uploaded by supplier. Now in next month Claim credit= Total ITC reflected now in GSTR 2A – ITC already claim(110%).
The 10% GST ITC rule creates pressure on professionals, businessmen and accountants to reconcile the ITC and follow up to supplier and also it is a burden on businessman as it increases the working capital requirement of business.
Government should think about it and should also give clarification on many other problems faced under this rule.
Government should give 2-3 months time to reconcile, calculating mismatch and for follow-up to suppliers. And also provide proper knowledge to taxpayers about this rule.
For any questions, you may reach us at Discussion Forum
The author of above article is Punit Chaplot.
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