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Accounting perspective of new GST input credit restriction rules

The CBIC imposed the restriction on availment of input tax credit (ITC) under GST in respect of invoices or debit notes, the details of which not have been uploaded by the supplies under sub section (1) of section 37 of CGST act.

CBIC inserted the new provision under rule 36 of chapter V input tax credit with effect from 9th October 2019, as per the new provision the registered person allow to avail the input tax credit only 20% of the eligible credit against the details of which have not been uploaded by the suppliers under sub-section (1) of section 37 for the particular month/period vide Notification No.49/2019 Dt: 09th October 2019

Further this restriction of 20% have been reduced to 10% with effect from 1st January 2020 vide Notification No. 75/2019 Dt: 26th December 2019.

This rule will lead high complications in terms of compliance, returns and accounting matters, and also affect the working capital and cash flow issue to the tax payer.

The industry and tax professional are already giving several request and representation to defer this rule due to complication. This article discussing about the accounting perspective of this rule apart from your input credit monitoring, GST return reconciliation, state wise records maintenance and input credit adjustment etc.

To capture and comply this rule in accounting perspective along with the control and GSTR-2A reconciliation and GSTR-3B return reconciliation with the books we should have the detailed GST ledger accounts in our chart of accounts. I will list out the necessary GLs required below

  1. CGST Output ledger - (by state) - This will be used to account your CGST output liability on your supply for respective state.
  2. SGST Output ledger - (by state) - This will be used to account your SGST output liability on your supply for respective state.
  3.  IGST output ledger - (by state) - This will be used to account your IGST output liability on your supply for respective state.
  4. CGST Input ledger- (by state) - This will be used to account the CGST input credit initially availed/taken for the respective state.
  5. SGST Input ledger - (by state) - This will be used to account the SGST input credit initially availed/taken for the respective state.
  6.  IGST Input ledger - (by state) this will be used to account the IGST input credit initially availed/taken for the respective state.
  7. Matched -CGST Input ledger- (by state) - This will be used to account the Eligible CGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal
  8. Matched -SGST Input ledger - (by state) This will be used to account the Eligible SGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal
  9.  Matched - IGST Input ledger - (by state) This will be used to account the Eligible IGST input credit those are matched with your GSTR-2A details such as the invoice/debit note details uploaded by the supplier in the GST portal
  10. Electronic cash ledger- (By state) - This will be used for accounting the different GSTs paid in cash by state.
  11. Provisional Credit ledger- CGST- (State)  This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by  state
  12. Provisional Credit ledger- SGST- (State) This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by  state
  13. Provisional Credit ledger- IGST-(State) This will be used to account the 10% credit which we are taking based on the eligible matched credit in our return by state.
  14. GST payment clearing ledger- (Optional)- This ledger can be optional if tax payer want to transfer the output and input in one ledger and finally arrive the liability/excess before finalising the return. We can create the same.

Now we start analyzing the accounting entry for each transaction beginning with your supply to understand the full concept

 

Month: 1

Transaction 1: Supply of goods/ Service (Our Sales) Rs.1,00,000 plus GST 18%

  

Details

Dr

Cr

Sundry Debtors

1,18,000

Sales a/c

1,00,000

CGST output A/c

9,000

SGST output A/c

9,000

( Being supply of goods )

Transaction 2: Purchase of goods/ Service (Our Input) Rs.50000 plus GST 18%

  

Details

Dr

Cr

Purchases/Expenses

50,000

CGST Input - A/c

4,500

SGST Input  A/c

4,500

Creditors A/c

59,000

( Being  purchase of goods )

Transaction 3: Out of availed Input Rs.9000 only Rs.8,000 ( Rs.4000 each CGST & SGST) are eligible and Rs.1000 are ineligible credit So we need to reverse Rs.1000

  

Details

Dr

Cr

Purchases/Expenses

1000

CGST Input - A/c

500

SGST Input  A/c

500

(Being  ineligible credit reversal)

Transaction 4: Out of eligible Input Rs.8000 only Rs.6,000 GST worth invoice/debit notes uploaded by supplies in GST portal and available in GSTR-2A So we can pass the below entry

  

Details

Dr

Cr

Matched CGST Input a/c

3000

Matched SGST Input a/c

3000

CGST Input - A/c

3000

SGST Input  A/c

3000

( Being  Matched Input credit with GSTR-2A)

 Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

  

Details

CGST Rs

SGST Rs

Actual input credit taken for the month- (A)

4500

4500

Less: Ineligible Credits - (B)

500

500

Balance - C= (A-B)

4000

4000

Less: Matched Credit with GSTR-2A - (D)

3000

3000

Match pending Credit- E=(C-D)

1000

1000

Provisional credit can be taken = 10% on (D)

300

300

Now we arrive the tax liability for the month

  

Details

CGST Rs.

SGST Rs.

Out tax liability

9000

9000

Less: Input credit

4500

4500

Add: Ineligible credit

500

500

Add: Match pending credit

1000

1000

Less: Provision credit - Rule-36(4)

300

300

Net liability to be paid in cash for the month

5700

5700

Now the entry for Provisional in the books below

  

Details

Dr

Cr

GST payment clearing

600

Provisional Credit ledger- CGST

300

Provisional Credit ledger- SGST

300

( Being Provision credit as per Rule-36(4) for Month

Now entry for GST payment

  

Details

Dr

Cr

Electronic cash ledger

11400

Cash/Bank

11400

(Being GST payment for the month)

Now set off the liability and input for the month

  

Details

Dr

Cr

CGST output A/c

9,000

SGST output A/c

9,000

Matched CGST Input a/c

3000

Matched SGST Input a/c

3000

Electronic cash ledger

11400

GST payment clearing

600

For the above entries your month 1 will be closed and now you carry the below 2 ledger balance for next month

  

Ledger

CGST

SGST

GST Input ledger- Debit ( which will unmatched input credit)

1000

1000

Provisional Credit ledger - Credit balance

(300)

(300)

Before carrying these balance to next month we need to remember the below points

  1. Input credit available in GSTR-2A can be reconciled matched till the date of filing of your GSTR-3B return, so accordingly you need to pass the entries based on your period closing date.
  2. This restriction of 10% is to be calculated on consolidated of available eligible credit in GSTR-2A not on supplier wise. But the practically we need to follow the supplier wise only to avoid more complications because, for example below
  1. In case supplier uploaded the invoice and  its reflecting in GSTR-2A but you have not received the same- ultimately you cannot avail the input credit
  2. In case we have taken the credit but supplier not uploaded the invoice, this credit not available in GSTR-2A hence unable to claim.
  3. In case mismatch due to invoice number, amount or tax amount- first we need to correct the mistakes for reconciliation

In all the above cases we need to reconcile the details supplier wise only.

  1. This rule will not apply on IGST paid on imports and Input credit received through Input credit Distributor (ISD).
  2. At any point of time the provisional input credit taken cannot be more than your unmatched credit for the particular month. In the above example the unmatched credit is Rs.1000 for each CGST & SGST each so your provisional credit cannot be more than Rs.1000 CGST & SGST.  
  3. The balance unmatched input credit for the particular month may be claimed in any of the succeeding month provided of those invoices are uploaded by the suppliers.
  4. We can claim proportionate input credit as and when detailed of some invoices are uploaded by the suppliers provided that the credit on invoices, the details of which are not uploaded remains under 20% of the eligible input tax credit, the details which are uploaded by the supplier.

Now we see the succeeding month how the accounting flow will be passed

Transaction 1: Supply of goods/ Service (Our Sales) Rs.1,50,000 plus GST 18%

  

Details

Dr

Cr

Sundry Debtors

1,77,000

Sales a/c

1,50,000

CGST output A/c

13,500

SGST output A/c

13,500

(Being supply of goods)

Transaction 2: Purchase of goods/ Service (Our Input) Rs.80000 plus GST 18%

  

Details

Dr

Cr

Purchases/Expenses

80,000

CGST Input - A/c

7,200

SGST Input  A/c

7,200

Creditors A/c

94,400

(Being  purchase of goods)

 Transaction 3: Out of availed Input Rs.14, 400 only Rs.13, 000 (Rs.6500 each CGST & SGST) eligible and Rs.1400 ineligible credit So we need to reverse Rs.1400

  

Details

Dr

Cr

Purchases/Expenses

1400

CGST Input - A/c

700

SGST Input  A/c

700

(Being  ineligible credit reversal)

Transaction 4: Out of eligible Input Rs.13000 only Rs.10,000 GST worth invoice/debit notes uploaded by supplies in GST portal and available in GSTR-2A So we can pass the below entry

  

Details

Dr

Cr

Matched CGST Input a/c

5000

Matched SGST Input a/c

5000

CGST Input - A/c

5000

SGST Input  A/c

5000

( Being  Matched Input credit with GSTR-2A)

Transaction 5:  Criteria 1:

Now some of the invoice unmatched last month GST worth Rs.1000 has been uploaded by the supplier current month, so no we eligible to avail that credit 100% 

  

Details

Dr

Cr

Matched CGST Input a/c

500

Matched SGST Input a/c

500

CGST Input - A/c

5000

SGST Input  A/c

5000

(Being last month unmatched Input credit with GSTR-2A this month matched)

Checking the Provisional credit balance for month: 1

  

Details

CGST Rs.

SGST Rs.

Total Eligible Input credit for the month

4000

4000

Less: Input matched and availed

3000

3000

Balance

1000

1000

Less :Provisional Credit availed for the month

300

300

Less: Invoice matched current month

500

500

Balance input credit

200

200

Based on the above calculation we still have the balance to available here

Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

  

Details

CGST Rs

SGST Rs

Actual input credit taken for the month- (A)

7200

7200

Less: Ineligible Credits - (B)

700

700

Balance - C= (A-B)

6500

6500

Less: Matched Credit with GSTR-2A - (D) For the month

5000

5000

Match pending Credit- E=(C-D)

1500

1500

Input on pending match invoice matched this month - (F)

500

500

Total Eligible credit available for the month G=(D+F)

5500

5500

Provisional credit can be taken = 10% on (G)

550

550

Now we arrive the tax liability for the month

  

Details

CGST Rs.

SGST Rs.

Out tax liability

13500

13500

Less: Input credit for the month

7200

7200

Add: Ineligible credit

700

700

Add: Match pending credit

1500

1500

Less: Last month pending credit matched

500

500

Less: Provision credit - Rule-36(4)

550

550

Net liability to be paid in cash for the month

7450

7450

Now the entry for Provisional in the books below

  

Details

Dr

Cr

GST payment clearing

1100

Provisional Credit ledger- CGST

550

Provisional Credit ledger- SGST

550

(Being Provision credit as per Rule-36(4) for Month)

Now entry for GST payment

  

Details

Dr

Cr

Electronic cash ledger

14900

Cash/Bank

14900

(Being GST payment for the month)

Now set off the liability and input for the month

  

Details

Dr

Cr

CGST output A/c

13,500

SGST output A/c

13,500

Matched CGST Input a/c

5500

Matched SGST Input a/c

5500

Electronic cash ledger

14900

GST payment clearing

1100

Transaction 5:  -Criteria 2:

All of the invoice unmatched last month GST has been uploaded by the supplier current month, so no we eligible to avail that credit 100% 

  

Details

Dr

Cr

Matched CGST Input a/c

1000

Matched SGST Input a/c

1000

CGST Input - A/c

1000

SGST Input  A/c

1000

( Being last month unmatched Input credit with GSTR-2A this month matched )

Checking the Provisional credit balance for month: 1

  

Details

CGST Rs.

SGST Rs.

Total Eligible Input credit for the month

4000

4000

Less: Input matched and availed

3000

3000

Balance

1000

1000

Less :Provisional Credit availed for the month

300

300

Less: Invoice matched current month

1000

1000

Balance input credit

(300)

(300)

 

Based on the above calculation your provisional credit for the month is exceeding your eligible credit available for the month by Rs.300 CGST & SGST. In this case you have to restrict your Input credit for the month by R.300 each CGST & SGST  

Now we need to arrive the Provision input credit can be taken as per new rule 36(4)

  

Details

CGST Rs

SGST Rs

Actual input credit taken for the month- (A)

7200

7200

Less: Ineligible Credits - (B)

700

700

Balance - C= (A-B)

6500

6500

Less: Matched Credit with GSTR-2A - (D) For the month

5000

5000

Match pending Credit- E=(C-D)

1500

1500

Input on pending match invoice matched this month - (F)

1000

1000

Total Eligible credit available for the month G=(D+F)

5500

5500

Provisional credit can be taken = 10% on (G)

550

550

Excess Provisional Credit Month -1 since all invoice reflected

(300)

(300)

Net Provisional credit to be restricted for the month

250

250

Now we arrive the tax liability for the month

  

Details

CGST Rs.

SGST Rs.

Out tax liability

13500

13500

Less: Input credit for the month

7200

7200

Add: Ineligible credit

700

700

Add: Match pending credit

1500

1500

Less: Last month pending credit matched

1000

1000

Less: Provision credit - Rule-36(4)

250

250

Net liability to be paid in cash for the month

7250

7250

Now the entry for Provisional in the books below

  

Details

Dr

Cr

GST payment clearing

500

Provisional Credit ledger- CGST

250

Provisional Credit ledger- SGST

250

( Being Provision credit as per Rule-36(4) for Month

Now entry for GST payment

  

Details

Dr

Cr

Electronic cash ledger

14500

Cash/Bank

14500

(Being GST payment for the month)

Now set off the liability and input for the month

  

Details

Dr

Cr

CGST output A/c

13,500

SGST output A/c

13,500

Matched CGST Input a/c

6000

Matched SGST Input a/c

6000

Electronic cash ledger

14500

GST payment clearing

500

For the above entries your month 2 will be closed and now you carry the below 2 ledger balance for next month

For Criteria: 1

  

Ledger

CGST

SGST

GST Input ledger- Debit ( which will unmatched input credit)

2000

2000

Provisional Credit ledger - Credit balance

(850)

(850)

For Criteria: 2

  

Ledger

CGST

SGST

GST Input ledger- Debit ( which will unmatched input credit)

5000

5000

Provisional Credit ledger - Credit balance

(550)

(550)

The above entries are looks simple but this will involve heavy work for reconciliation of each state GST input ledger month wise and arrive the matched and unmatched invoices and maintain the monthly provisional credit ledger etc. for the understanding convenience article discussed with only CGST & CGST the same concept will apply for IGST transactions also.

The above entries are proposed for understand the provisions only.


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Category GST, Other Articles by - CMA Ramesh Krishnan 



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