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Restriction of Input Tax Credit to 20% - Breakdown

CA GAUTHAM RAJ 
on 02 November 2019

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MOF vide notification no. 49/2019 -  Central Tax dated 09th October, 2019 vide powers conferred on central government under section 164 of Central Goods and Services Tax Act, 2017, through CGST (Sixth Amendment) Rules, 2019, has inserted sub-rule (4) in rule 36 on Documentary requirements and conditions for claiming Input Tax Credit. The sub rule is reproduced as follows:

"(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.".

Restriction of Input Tax Credit to 20  - Breakdown

Break down of the Rule 36 of CGST Rules, 2017 on Input Tax Credit:

PRIOR TO NOTIFICATION NO. 49/2019 - CENTRAL TAX

Prior to the aforesaid amendment, the sub-rule (2) provides that, "Input tax credit shall be availed by a registered person only if all the applicable particulars as specified  in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR 2 by such person".

Rule 36(2) r/w rule 60 of CGST Rules, 2017, provides that every registered person, other than person referred to in section 14 of the IGST Act, 2017, required to furnish the details of inward supplies of goods or services or both in FORM GSTR 2. Since, FORM GSTR 2 since the commencement of Act, has not been into existence, the assessee who are in maintaining the requisite documents necessary for entitlement of Input Tax Credit under R. 36(1), have claimed the total amount of GST as credit avaiable with them. But on Contrary, where the other party who is required to upload the details of the same in GSTR 1 might not uploaded the same or not paid the GST amount pertaining to such transaction, the government indeed the CBIC which is in loss of revenue from the both sides, has come up with the notification no. 49/2019 - Central Tax.

POST NOTIFICATION NO. 49/2019 - CENTRAL TAX

Post notification, vide amendment to R. 36 of CGST Rules, 2017 has inserted sub-rule (4) as reproduced above, to restrict the registered person to entitle the Input Tax Credit upto 20% of the invoices uploaded by the supplier through GSTR 1. Therefore, the main task of every registered person hereafter shall be of reconciliation of the Input Tax credit on a monthly basis with that uploaded by the other party and follow up the same for entitlement of credit.

Sec 50(3) of CGST Act, 2017 shall also be referred while filing the returns and availing the ITC for the months. Since, sub-section 3 of Section 50 provides that "A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) fo section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, of such rate not exceeding twenty-four percent, as may be notified by the government on recommendations of the council". 

Therefore, Reconciliation and Follow-up with the suppliers shall be given the top priority in order not to pay any interest at the rate of 24% theron.

The author can also be reached at mgr_co@yahoo.com


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