20% GST ITC, 100% Tension to taxpayers

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Courtesy: CA Umesh Sharma

Arjuna (Fictional Character): Krishna, a circular was issued on 11/11/2019, which restricted ITC claim, maximum ITC that can be claimed now is 20% above the ITC as appearing in GSTR-2A as per new rule 36(4) w.e.f. 09/10/2019 onwards.  So, what is it?

Krishna(Fictional Character): Arjuna, taxpayer can now claim 120% of ITC as appearing in GSTR-2A or ITC as per books, whichever is lower. So, it is very apt to say that “this 20% restriction on ITC is going to give 100% tension to the taxpayers.  

Arjuna: Krishna, How to calculate 20% ITC, whether it would be invoice-wise or supplier-wise?

Krishna: Arjuna, The restriction imposed is not supplier wise. The credit available is linked to total eligible credit from all suppliers against all the supplies, the details of which have been uploaded by the suppliers. Further, for the purpose of calculation only those invoices would be considered which are eligible for credit i.e. invoices attracting provisions of 17(5) would not be considered.

Arjuna: Krishna, what are the roles and responsibilities of recipient under new scenario?

Krishna: Arjuna, the roles and responsibilities of recipient are as follows:

·         The recipient have to reconcile purchases as appearing in Books of accounts with GSTR-2A.

·         Recipient now needs to take follow up with supplier so that supplier files his GSTR-1 within due date and upload every invoice.

·         If mismatches arises in GSTR-2A and ITC claimed , it would greatly impact working capital and cash-flow,.

Let us understand this with an example:

If “A” is taxpayer and has ITC of Rs. 2,50,000/- in books. But the ITC as appearing in GSTR-2A is 2,00,000.

Now in this case, ITC appearing in Books is Rs. 2,50,000/- but ITC appearing in GSTR-2A is Rs. 2,00,000/-. So as per new notification maximum permissible ITC to “A” is Rs. 2,00,000+20% i.e. Rs. 2,40,000. So, “A” cannot claim balance mismatched ITC of Rs.10,000/- i.e. (2,50,000-2,40,000) and such claim would be disallowed and needs to be claimed when matched in future.

Arjuna: Krishna, what is the date on which taxpayer should check GSTR-2A, for claiming ITC ?

Krishna: Arjuna, The taxpayer have to ascertain Form GSTR-2A as available on the due date of filing of FORM GSTR-1  i.e. 11th of subsequent month u/sec 37(1) of the supplier.

Arjuna: Krishna, What are the difficulties in this ITC 20% rule?

Krishna: Arjuna, This rule is a complex one. Number of issues are going to arise, like How to keep track of mismatch in each return? What about interest liability on mismatch? How it will be implemented, etc.? Lots of confusion will arise due to monthly and quarterly GSTR filing periods. God knows how taxpayer will save himself from such draconian rules.

Arjuna: Krishna, what lesson one should learn from this?

Krishna: Arjuna, the change has been challenged in Gujarat High Court. Let’s see what happens. The changes are going to be tough for taxpayers. It would involve huge burden of cash-flow. ITC reconciliation for recipient i.e. matching books and GSTR-2A is a cumbersome process. GST was supposed to be a “Simple Tax” but this new rule has further deteriorated the situation for the taxpayers. Thus, this 20% restriction on ITC is going to give 100% tension to taxpayers.

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