Proposal to move towards Digital Input Tax Credit

Arjuna (Fictional Character): Krishna, Honorable Finance Minister had declared the Finance Budget of 2022-23 on 01^st February in the Lok Sabha and proposed to substitute section 38 by the finance bill 2022. What is the major change proposed between old section and new proposed section?

Krishna (Fictional Character): Arjuna, the heading of section 38 has been proposed to be change from "Furnishing details of inward supplies" to "Communication of details of inward supplies and input tax credit" i.e., now the government has done away with the requirement of filling of statement of inward supplies by this.

Arjuna (Fictional Character): Krishna, what are the changes proposed that restrict the claim of input tax credit as per new section?

Krishna (Fictional Character): Arjuna, the new proposed section provides for the manner, conditions and restrictions for communication of details of inward supplies and input tax credit to the recipient by means of an auto-generated statement on the basis of which recipient would be able to claim input tax credit which is not restricted under this section as per proposed section 16(2)(ba).

Arjuna (Fictional Character): Krishna, what are the situations in which input tax credit would be restricted to the recipient in auto-generated statement?

Krishna (Fictional Character): Arjuna, following are the situations in which input tax credit would be restricted to the recipient in auto-generated statement:

1. Input tax credit from registered person within such period of taking registration as may be prescribed.
2. Input tax credit from registered person who has defaulted in payment of tax and where such default has been continued for such period as may be prescribed.
3. Input tax credit from registered person who has declared excess outward tax in the return of outward supplies compared to output tax paid by him.
4. Input tax credit from registered person who has claimed excess input tax than can be availed by him.
5. Any other case as may be prescribed.

Arjuna (Fictional Character): Krishna, what should one learn from this?

Krishna (Fictional Character): Arjuna, government is continuously stretching the conditions for claim of input tax credit. In addition to section 17(5) and 36(4) government has added section 38 for restricting claim of input tax credit. Further it appears that this auto-generated statement will become main document relied upon by the tax officers for allowing or disallowing the input tax credit, as credit will be allowed to the recipient only if it is reflected in auto generated statement which can also be called as digital input tax credit.