Claim of ITC w.e.f. 1st January 2022 – CMA Prakash Rijhwani
We all are aware of the radical changes brought in by the Government from time to time in the way we claim ITC in GSTR 3B since implementation of GST. The history with respect to claim of Input tax credit on the invoices or debit notes which are required to be reported in GSTR-1 is summarized as:
|
Period |
Legal Position |
|
01.07.2017 to 08.10.2019 |
No express provision to claim ITC only if the same is appearing in GSTR-2A/2B. |
|
09.10.2019 to 31.12.2019 |
Rule 36(4) inserted to restrict claim of ITC upto 120% of eligible ITC for which documents uploaded by Supplier in GSTR-1. |
|
01.01.2020 to 31.12.2020 |
The restriction under Rule 36(4) revised from 120% to 110% of eligible ITC for which documents uploaded by Supplier in GSTR-1. |
|
01.01.2021 to 31.12.2021 |
The restriction under Rule 36(4) revised from 110% to 105% of eligible ITC for which documents uploaded by Supplier in GSTR-1. |
Now, new clause “(aa)” to Section 16(2) has been inserted vide Section 109 of the Finance Act, 2021 which has come into force w.e.f. 01.01.2022 vide Notification No. 39/2021- Central Tax dated 21.12.2021. Consequently, further changes have been made in Rule 36(4) of CGST Rules, 2017 to align it with new clause (aa) of Section 16(2) of CGST Act, 2017.
Accordingly, w.e.f. 01.01.2022, a registered person shall be able to avail ITC in respect of only such invoices or debit notes the details of which have been furnished by the supplier in their GSTR-1/IFF and appearing in GSTR-2B.
Say, we can avail ITC only when the details of the invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37, say by filing of return GSTR 1.
This change means that filing of the return by our seller is now compulsory for us to get our ITC claim, which was not the case earlier.
Henceforth, the 5% markup allowed by the Government has also been removed!
Key changes
- Earlier Rule 36(4) mandated claim of ITC based on gross reconciliation (not supplier-wise) but now document-wise reconciliation is required to be done.
- In case of quarterly vendors filing GSTR-1 on a quarterly basis, ITC will be available only when the same is furnished by the vendors in GSTR-1 or in IFF on a monthly basis.
- As per strict interpretation of the above provisions, since registered suppliers where recipient is paying tax under RCM i.e. legal services, transportation services etc. are required to upload the details of Invoices/Debit Notes in GSTR-1 as per Section 37(1) of CGST Act, 2017, the restriction of claim of ITC will apply even in case of inward supplies liable to RCM received from registered suppliers.
- The restriction of ITC does not apply to import of goods from outside India including SEZ, import of services, ISD credit, RCM credit on supplies from unregistered persons.
- The matching of ITC should be done as per GSTR-2B and not GSTR-2A in terms of Rule 36(4).
- Such amendment made effective w.e.f. 01.01.2022 shall apply to all the ITC taken on or after 01.01.2022, meaning thereby that such restriction would apply even if credit is taken on or after 01.01.2022 on invoices raised before 01.01.2022.
The following Scenario wise analysis will help to understand the suggested actions to avail ITC:
Scenario Analysis and suggested Actions
| Scenario |
Criteria |
Action in GST-3B and books |
|
Invoice accounted for in books and also appearing in GSTR-2B of January 21 |
MATCH |
ITC can be claimed subject to eligibility in GSTR-3B |
|
Invoice accounted for in books but NOT appearing in GSTR-2B of same month |
Books> GSTR2B |
ITC cannot be claimed in GSTR-3B unless the same appears in GSTR-2B. Such ITC should be parked as Unreconciled ITC/Deferred ITC and be tracked on a monthly basis and will be claimed once the same appears in GSTR-2B. |
|
Invoice NOT accounted for in books but appearing in GSTR2B |
Books< GSTR2B |
ITC Cannot be claimed as Invoice not available or goods or service not received in that month. It can be claimed once accounted for in books. It is important to have invoice-wise break-up of such ITC at any point of time for internal control for booking that month transactions and taking action and explaining to Department. |
|
Mismatch in ITC due to previous months effects |
|
This will happen due to spill-over effects of previous months ITC. For e.g. if ITC of ? 100 of M/s ABC was appearing in GSTR-2B of January 22 but the same was recorded in books in February 22. Now in February 22, ITC claimed in GSTR-3B will be more than ITC as per GSTR-2B of February 2022 as ITC claim contains Invoice of previous months for which suitable reconciliation is required to be maintained for each month. |
Suggested Action Points for safeguard of ITC
- All vendors filing monthly GSTR-1 should be insisted to file GSTR-1 on or before due date to avail ITC on Invoices or Debit Notes in same month.
- All vendors filing quarterly GSTR-1 should be insisted to upload Invoices or Debit Notes on a monthly basis in IFF on or before due date to avail ITC on Invoices or Debit Notes in same month.
- Monthly document-wise reconciliation of ITC as per books vis-vis ITC appearing in GSTR-2B should be done and in case any Invoices or Debit Notes are not appearing in the GSTR-2B for the same month, the ITC of the such Invoices or Debit Notes cannot be claimed. In such case, it would be advisable to park the same as ‘Deferred or Unclaimed ITC’ to claim the same in a month in which it is reported in GSTR-2B.
- It is important to have an indemnity clause in agreement or Purchase orders to the effect that any loss of ITC due to non-filing of GSTR-1 by the vendors or wrong filing of GSTR-1 due to which invoices or debit notes are not appearing in GSTR-2B will be indemnified by the vendor.
- Robust system should be in place to have background checks of Vendors in terms of compliance rating and in case of doubt, suitable policy of retaining GST portion may be devised.
In nutshell, it is imperative to have robust internal control system of reconciliation to claim ITC on a timely basis with the support of technology that can manage the behaviour of Vendors specially non-filing of returns.
