CBIC Notified New Conditions for ITC Eligibility under GST

Central Board of Indirect Taxes and Customs (CBIC) amended Section 16 of the Central Goods and Servies Tax (GST) Act to include new conditions for Input Tax Credit (ITC) eligibility. The department inserted a new condition in explanation to Section 16(2)(b), stating that ITC can be claimed only if it is not restricted under Section 38 of the CGST Act.

Coming to Section 38 of the CGST act, the department has amended to insert more conditions for identification of the ‘ITC Not Available’ section in GSTR-2B. Till now, the department considered below two conditions while identifying the ITC not available:

  1.  ITC is not available due to a different Place of Supply (POS) compared to registration
  2. ITC is unavailable due to submission of invoice/debit note after the specified time limit u/s 16(4)

However, with the latest amendment, the department will include the below conditions while bifurcating the ITC as available and not available in GSTR-2B:

  • Suppose your supplier defaults GST payment and continues until the prescribed time limit. However, the time limit is yet to be notified.
  • When your supplier is newly registered, till the time notified, here also, the department is yet to notify the time limit from the date of registration.       
  • If your supplier paid less tax in GSTR-3B compared to GSTR-1.
  • If you claim more ITC in GSTR-3B compared to GSTR-2B.
  • When you utilise more ITC from the electronic credit ledger allowed in the law.
  • Other conditions, if any prescribed in the rules.

Hence, the businesses shall relook into their ITC claim process, vendor compliance, and return filing process to streamline the latest amendments. Also, the department focused on blocking ITC so that the recipient/buyer will nudge their supplier/buyer to properly file the returns.

The government included these new conditions to act proactively by blocking the ITC rather than wait till the notice/inspection/audit and then take action over the default taxpayers. Also, CBIC made this move to align the act so that the ITC blocking is legal and avoids any future litigations.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@clear.in

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