ITC without invoices allowed only to the extent of 10%

CBIC has notified 1 January 2020 as the date of applicability of the 10% provisional Input Tax Credit (ITC) rule, bringing it down from the existing 20%. The GST Council had in its 38th GST Council Meeting held on 18 December 2019, further restricted the availability of provisional ITC.

According to the earlier rule, provisional credit may be claimed in the GSTR-3B, only to the extent of 20% of eligible ITC appearing in the GSTR-2A. A new sub-rule (4) was inserted to rule 36 to give effect to this law. The effective date of implementation of the rule is 9 October 2019.

Accordingly, a taxpayer filing GSTR-3B can claim ITC only to the extent of 120% of the eligible credit available, against invoices or debit notes, uploaded by their suppliers in the GSTR-2A. The restriction applies from 9 October 2019.

This percentage has now been reduced to 10% from the previous 20%.

Eligible ITC implies the sum of ITC relating to a taxpayer’s business activities. It includes purchases made as well as services received, capital assets bought, etc. eligible to be claimed to set-off GST liabilities.

Also Read: More Conditions laid down to claim ITC in GSTR-3B by CBIC

The taxpayers are required to declare the summary of ITC figures classified as IGST, CGST and SGST in table 4(a) of GSTR-3B. Until 9 October 2019, there was no mandate to reconcile the ITC figure with the GSTR-2A although it was always advised.

The new rule affects the working capital of all taxpayers. They will now be forced to make the GST payments in cash even though the ITC was available for use because of their supplier’s failure to upload invoices.

The buyers registered under GST have now an additional responsibility of nudging their suppliers to upload the invoice documents on time. They may even withhold payments to suppliers for such documents not uploaded. 

Apart from this, the tax authorities are choosing stern measures for increasing compliance under the existing GST returns. It includes blocking of e-way bills for not filing GSTR-1 for two consecutive tax periods, timely issue of notices for non-filing of GSTR-3B and initiating best judgement assessments after that.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in