ITC claim will be restricted if supplier does not file GSTR-1

In the 37th GST Council meeting, decisions have been taken regarding changes in GST rates, exemptions to specific sectors, waiver and simplification of annual returns, imposing restrictions on Input Tax Credit (ITC) and other GST related issues.

As per the statistics released by the government, the GSTR-1 filings were almost half of the GSTR-3B filings. To push the timely reporting of outward supplies by suppliers through GSTR-1, the 37th GST Council recommended imposing restrictions on ITC claim. The ITC will be allowed to a recipient, only when his supplier reports outward supplies in GSTR-1.

Under the present return filing system, the supplier has to report his outward supplies in form GSTR-1. This reported outward supplies will be reflected in recipient GSTR-2A. The recipient can claim Provisional ITC even though the invoice was not reflected in GSTR-2A.

There are two modes to discharge tax liability by the recipient, one is through claiming ITC and other is through cash payment. The cash payment by the recipient will be received by the government immediately. The ITC claim will be considered as valid payment only when the supplier reports his outward supplies to the government along with tax liability in form GSTR-1.

Also Read: Implementation of fully electronic refund module for GST ITC refund

In the normal course of business, the recipients will be of the view that their tax liability has been discharged on making tax payment to the suppliers. But, there is an implicit responsibility on a recipient to follow up with the supplier’s regarding reporting of his outward supplies.

This has to be done by the recipient to validate his ITC claim. The government will consider the liability as discharged when it has received the total tax liability either through ITC claim or cash payment.

As of now, there are no restrictions on ITC claim and the present return system has a gap that allows unscrupulous taxpayers to claim wrongful ITC. The step recommended by the Council will ensure the validity of the ITC claim in the system. The government is so clear to plug the ITC leakages and curb tax evasions involving fraudulent ITC claims.

The new restrictions on ITC claim will place an explicit responsibility on the recipient, to follow up with the supplier’s return filing. Businesses need a robust mechanism which will keep suppliers in check and make sure that they are complying in a timely manner.

For any clarifications/feedback on the topic, please contact the writer at

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