ICICI

Explanation of rule 36 (4) of CGST Rules, 2017 with illustrations

CA Amit Jain 
on 02 December 2019


Rule 36 (4): Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.

 

Central Board of Indirect Taxes and Customs (CBIC), have issued a circular 123/42/2019-GST dated 11th November 2019, with an intent to clarify therein, various issues such as the manner of calculating the restriction of 20%, the cut-off date for carrying out reconciliation and the scope of the restriction.

Summary of Circular

• The restriction imposed under rule 36(4) of the CGST Rules, 2017, needs to be carried out by the taxpayers on a self-assessment basis.

• Full ITC of eligible credits shall be available on following:

a. IGST paid on imports
b. Documents issued under reverse charge mechanism (RCM)
c. Credit received from input service distributor (ISD)

Out of syllabus for May 2020 but good circulars to understand Rule 36 (4)

• The restriction of credit shall be applicable only on invoices/debit notes on which credit has been availed on or after 9th October 2019.

• The restriction is not to be computed supplier wise.

• For the purpose of calculating the restriction, ineligible credits such as those enumerated under section 17(5) of the CGST Act, 2017, shall not be considered.

 

• For the purpose of determining the quantum of matched eligible credits, the GSTR-2A as available on the due date of filing of form GSTR-1, should be considered.

Illustration of the manner of calculating the eligible ITC that can be availed in GSTR-3B is as under-

(INR in lakhs)

Scenarios

Eligible credit as per books

Eligible credit as per GSTR 2A as on the due date of filing of GSTR- 1

Eligible credit not reflected in GSTR2A

20% of eligible ITC

Amount of credit as per rule 36(4) in respect of invoices/debit notes, the

details of which has not been uploaded by the supplier

in GSTR-1

Total eligible credit that can be claimed in GSTR- 3B

Un- availed eligible credit by

virtue of restriction imposed by rule 36(4)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

20% of (c)

Lower of (d) or (e)

(c) + (f)

(d) - (f)

1

10.00

6.00

4.00

1.20

1.20

7.20

2.80

2

10.00

7.00

3.00

1.40

1.40

8.40

1.60

3

10.00

8.50

1.50

1.70

1.50

10.00

NIL

Note: Un-availed credit as illustrated in scenarios (1) and (2) above, can be claimed in any of the succeeding tax period(s), provided the details of requisite invoices are uploaded by the suppliers.

 

Though the circular has clarified some doubts, however the challenges of implementing the same every month is still not being addressed i.e. whether reconciliation to be done on a YTD basis or on a monthly basis, considering that there is always going to be a gap between invoice booking by the recipient and the uploading of invoice by supplier in their respective GSTR-1.

Example:

Name of Supplier

ITC Element on Invoice

Invoice uploaded by Supplier in his GSTR-1 & Auto-populated to GSTR-2A of Recipient

Admissible ITC considering restriction of Rule 36(4)

Mr. A

2,00,000

2,00,000

No Invoice wise ITC

Mr. B

3,00,000

1,00,000

Mr. C

10,00,000 {Blocked Credit 17 (5)}

10,00,000

Total

15,00,000

13,00,000

Admissible ITC

5,00,000

3,00,000 (eligible ITC)

3,60,000


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