CBIC had released a notification in the month of October 2019 adding a new rule under the CGST Rules, 2017. It stated that the provisional input tax credit (ITC) can be claimed in the GSTR-3B only to the extent of 20% of the eligible ITC reflected in GSTR-2A. Recently, a clarification has been issued by CBIC about the implementation of this rule.
The new rule will be implemented with effect from the 9th of October 2019. Any taxpayer filing GSTR-3B will be able to claim the provisional ITC only to the extent of 20% of the eligible credit; such credit details must be uploaded by the suppliers in the GSTR-2A.
The notification no. 49/2019-Central Tax dated 9 October 2019 adds a new clause to the rule 36 of CGST Rules.
Prior to this rule, all the taxpayers claimed ITC on a self-declaration basis in table 4(a) of the GSTR-3B. It was not compulsory to reconcile the ITC amount with the details uploaded in the GSTR-2A until now. Even if the ITC available in GSTR-2A was less than the ITC available in the books of account, the taxpayers were able to claim full ITC in GSTR-3B and the unavailable amount in GSTR-2A was treated as a provisional ITC.
Starting from now, the taxpayers will only claim 20% of the eligible ITC amount reflected in the GSTR-2A as the provisional ITC and the balance tax liability will be paid in cash.
The rule might affect the working capital of the businesses as the taxpayers will be required to make GST payments in cash, even if they have made payment to the suppliers and have eligible ITC in their books. The businesses will have to manage their accounts payable effectively in order to mitigate the working capital shortage.
Also Read: Important Update to GSTR-3B Filers; Provisional ITC Now Limited to 20%
Let’s understand this new rule with the help of an example:
A taxpayer who has to file GSTR-3B for the month of December 2019 would claim the ITC before and after the implementation of the new rule in the following way:
| Sl No | Particulars | Before | After |
| A | Eligible ITC* available in the purchase register | 1,20,000 | 1,20,000 |
| B | Eligible ITC* available in the GSTR-2A | 70,000 | 70,000 |
| C | Amount of provisional credit that can be claimed | 50,000 | 14,000 (70,000*20%) |
| D=B+C | Total ITC that can be claimed in the GSTR-3B | 1,20,000 | 84,000 |
| E=A-D | ITC not allowed in the GSTR-3B of December 2019 | Nil | 36,000 |
Here is an example to understand how eligible ITC will be computed (the amount is given in Rupees):
| Table 1: Computation of Eligible ITC as per Books of Accounts | ||
| A | ITC appearing in the books for Dec’19 | 1,50,000 |
| B | ITC related to business purchases for Dec’19 (eligible ITC) | 1,20,000 |
| C=A-B | Ineligible ITC reflecting in books in Nov’19 | 30,000 |
| D=B | Total eligible ITC that can be claimed as per books for Dec’19 | 1,20,000 |
| Table 2: Computation of Eligible ITC as per GSTR-2A | ||
| A | ITC appearing in the GSTR-2A for Dec’19 | 85,000 |
| B | ITC related to business purchases for Dec’19 (eligible ITC) | 70,000 |
| C=A-B | Ineligible ITC reflecting in the GSTR-2A in Dec’19 | 15,000 |
| D=B | Total eligible ITC that can be claimed as per GSTR-2A for Dec’19 | 70,000 |
| A (Table 1) – A (Table 2) | Total ITC (the difference between the books and the GSTR-2A) not reflecting in the GSTR-2A for Dec’19 | 65,000 (1,50,000-85,000) |
| D (Table 1) – D (Table 2) | Eligible ITC (the difference between the books and the GSTR-2A) not reflecting in the GSTR-2A for Dec’19 | 50,000 (Rs.1,20,000-Rs.70,000) |
The taxpayer will only be able to claim Rs 14,000 (70000*20%) on the GSTR-3B of December 2019. The balance ITC can be claimed in a later tax period once the pending invoices are uploaded by the suppliers.
Here are some important points that the taxpayer should take care of while claiming provisional credit:
- The cap of 20% provisional credit is not supplier-wise. It is linked to the sum total of all the suppliers based on the details uploaded in the GSTR-2A.
- The cut-off date for claiming the provisional credit will be the due date of filing returns. A taxpayer might claim 20% of the ITC based on invoices uploaded by his suppliers, until the date of filing his GSTR-1.
- If part of the pending invoices is uploaded in a later month, the provisional credit must not exceed 20% of eligible ITC.
The taxpayers will have to regularly match and reconcile their books of accounts and the GSTR-2A to raise accurate ITC claims. In case of any mismatches, they can communicate to the supplier before filing their GSTR-3B and claiming a provisional credit. It will help them save time and money in the long run.
For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in.
I am an aspiring Chartered Accountant. I spend most of my free time dredging through the various Indian finance subreddits. I am a semi-professional bowler with a high strike rate every time there is a new tax reform!
