Are you familiar with the new input tax credit (ITC) rule? It has a great impact on the business world. Only 20% of eligible ITC you can claim if GSTR 1 not filed by the suppliers. So, there will be a huge impact of the new ITC rule on the business.
On 9th Oct 2019, the Central Board of Indirect Taxes and Customs have issued a notification vide notification number 49/2019-Central Tax.
That notification is related to claiming the input tax credit or ITC on GST.
Or, you can say the notification is related to restriction on claiming ITC on GST.
And this new rule has a big impact on the business.
This rule will change the day to day work life of both the businessmen and the professionals.
Let’s know it clearly.
- 1 New ITC rule as per Notification No 49/2019-Central Tax
- 2 Conditions for Claiming ITC as per Section 16(2) of the CGST Act.
- 3 Present ITC claiming procedures.
- 4 Changes Made in New ITC Rule
- 5 Reasons for this New ITC Rule.
- 6 Impact on Business
- 7 Main problem areas of this new ITC rule (With Video)
- 8 Final Word
New ITC rule as per Notification No 49/2019-Central Tax
The following are the New ITC rules:
“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.”
——– As per Notification No. 49/2019-Central Tax.
And believe me, it is not as simple as it looks.
It means you are eligible to claim an extra 20% of the ITC reflects in GSTR-2A.
Ok, Let’s go.
I will show you everything.
Conditions for Claiming ITC as per Section 16(2) of the CGST Act.
Before the issuance of the above-mentioned notification, you can take ITC on the basis of your books of accounts. You just have to follow the provisions of section 16(2) of the CGST Act.
According to the provisions of section 16(2) of the CGST Act, you are eligible to take the input tax credit in respect of the supply of goods or services or both if the following conditions are satisfied:
i) You must have all the invoices or debit notes or such other prescribed tax paying documents issued by registered suppliers;
ii) You must have received the goods or services or both;
iii) The amount of tax in respect of such documents is actually paid to the Govt. either in cash or through the utilization of input tax credit, and
iv) You should furnish the return under section 39.
So, you can see there was no problem to claim ITC as per the previous rule.
Now the situation is changed.
Present ITC claiming procedures.
As you know, there were three types of return in GST
- GSTR 1: Outward Supply.
- GSTR 2: Inward Supply.
- And GSTR 3: Summary of above and tax payment.
But, after a few days of the introduction of GST, GSTR 2 and 3 were stopped.
A new return, GSTR 3B, was introduced. It is a monthly return, you have to put the summary of outward supply and the input tax credit here.
You have to pay the tax (if any) on the basis of the above summary through the GSTR 3B.
GSTR 1 is still there. Therefore, at present, there are two types of return, GSTR 1 and GSTR 3B
You have to file GSTR 3B on a monthly basis.
On the other hand, You can file GSTR 1 on a monthly basis or quarterly basis. This depends on your turnover.
And now the problem arose.
As you know, in 3B you can only provide your ITC only.
Due to the non-availability of GSTR-2, you can’t upload your purchase details.
So, for the purpose of proper tracking, Govt. has introduced GSTR 2A.
The details of the B2B transaction in GSTR 1 will automatically refect in GSTR 2A in your GST profile.
For example, You have purchased goods worth Rs. 50000 from Mr.A. The GST rate is 18%. So, the GST amount is Rs. 9000. When Mr. A files his GSTR 1 and shows the transaction related to you, the amount of ITC of Rs. 9000 will automatically reflect in 2A of your portal.
But the introduction of 2A has no impact on your ITC.
No one bothers whether the ITC was reflected on 2A or not.
You just have claimed your ITC as per your Books of Accounts.
Changes Made in New ITC Rule
I will provide you an example.
Suppose, in Nov 2019 the ITC as per your books of accounts is Rs. 15000.
However, as per the GSTR 2A record, the amount of the ITC is Rs. 10000.
If we follow the old process then you can take credit of the whole of the amount i.e. entire Rs. 15000.
But as per the new rule, you are not eligible for the entire amount.
Your eligible ITC will be Rs.10000 (As per 2A) + (20% of Rs. 10000).
Or you can say Rs. 10000 + Rs. 2000 = Rs. 12000.
So, the difference in ITC is Rs. 3000.
Now you can understand what is the difference between the old rule and the new one.
Do you know what is the biggest headache of taxpayers?
If there is no ITC in 2A you can’t claim a single ITC.
And this is one of the biggest impacts.
Reasons for this New ITC Rule.
Fake ITC Claim.
Yes. It is the main reason.
In September, the amount of total GST collection is Rs. 91916 Crore.
And it shows a huge decline in the collection.
Yes, you can say the decline may be for the economic slowdown.
But fake ITC claim is also one of the main reasons.
For example, Mr. A has issued a fake invoice to you. In turn, you claim it on the GSTR 3B. But Mr. A hasn’t shown that invoice in the return because that was a fake invoice.
According to the old rule, there was no problem for you to claim the ITC.
But in the new ITC rule, you can’t claim your ITC if it will not be shown in GSTR 2A.
And you know, if your supplier files GSTR 1 by showing the invoices belong to you then only the invoices will appear in GSTR 2A.
By implementing this rule Govt. tries to remove completely the issuance of fake invoices and utilization of fake ITC.
Impact on Business
Or you can say “Huge Impact on Business”.
This rule has a big impact on business in three different ways and those are:
- Impact on Suppliers,
- Impact on Purchasers, and
- Last but not least, Impact on Professionals/Practitioners
Impact on Suppliers
Actually, a supplier is the main key point of this rule.
The roles and responsibility of a supplier is the main factor now.
If a supplier does not file GSTR 1 timely or misses to show any invoice, the recipient can’t claim the ITC.
Such particulars transaction will not appear in 2A and subsequently, the recipient will face the problem to claim ITC.
Now, if a particular supplier does not fulfill the GST compliance timely, his all recipients will face problems in the future.
In turn, they may close all the business with that particular supplier or my hold the payments.
Impact on Purchasers/Recipients
You know what?
Every recipient is thinking now about this rule.
Because they know what is the impact of this rule on their business.
Actually the roles and responsibility of a recipient have been increased and they are as follows:
- Regular reconciliation of GSTR 2A with books of accounts,
- Recall the supplier regularly. If there is any mistake in filing GSTR 1, the recipient must recall them about the mistake.
And you know the recipients can’t do this work alone.
So, they need a good professional/practitioner.
Impact on Professional/Practitioner
Are you a professional?
Then you are the main player in this game.
As a professional, you should provide your best work to the businessmen.
Your workload as a professional (On behalf of the businessmen):
- Timely filing of GST returns.
- Proper filing of GST returns. Avoid mismatch or mistakes in filing.
- Reconciliation of the data of both GSTR 2A and books of accounts.
- Provide the information to the businessmen about any mismatch between the date of GSTR 2A and the books of accounts.
So, you can understand the workload and responsibilities.
Main problem areas of this new ITC rule (With Video)
Actually, this new ITC rule is not a perfect one.
Yes, the logic behind this rule is a strong one but it has some shortfall, and they are:
- Quarterly GSTR 1. And it is the main problem. If your all suppliers are file GSTR 1 quarterly, then you have to wait for a long time to claim the ITC. Because there will be no ITC in GSTR 2A until the GSTR 1 will be filed.
- How to calculate ITC as per the new ITC rule? Are you consider total ITC appeared in GSTR 2A or you have to calculate it in respect of invoices or in respect of details of the suppliers?
- No tracking system in GSTR 1. How can you track all the invoices?
There are so many confusions. You can watch this video.
It is a rule.
So, we have to follow it.
But this also the duty of the Govt. to provide us proper clarification about the rule.
So, you have to wait for that clarification.
Until then, confusion will exist.
Enjoy your business with that confusion.
See you soon.