Now buyer need to buy at lower rate but buy from tax compliant seller : Know about 20% Rule in GST for ITC restrictions
A new rule 36(4) inserted vide Notification No. 49/2019 – Central Tax dated 09.10.2019 which is likely to punish the buyer who is purchases goods from the supplier who is non tax compliant.
New rule has placed a restriction on input tax credit claims to 20% of the “eligible amount” where in respect of invoices or debit notes, the details have not been uploaded by the suppliers in their respective GSTR-1s as required under section 37(1) of the CGST Act, 2017. As a result of the new rule, entire ITC as per the books of the purchaser is not eligible for set off. The set off is available only if the seller file the GST returns. There is a concession of 20% i.e. such unmatched ITC shall not exceed 20% of the eligible credit reflected in GSTR-2A
Know about Rule 36(4) inserted in the CGST Rules, 2017
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 in their GSTR-1 under section 37(1), 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 section 37(1).
The most important issue is now with regard to the method of calculating this 20% amount, the cut-off date.
Further, the issue remains whether calculation has to be done supplier-wise or on a consolidated basis. Clarification circular issued by CBIC has clarified all the practical aspects.
The restriction is not occurring through the GST Portal and it is the responsibility of the taxpayer that credit is availed in terms of the said rule. Resultantly, the availment of restricted credit in terms of rule 36(4) of CGST Rules shall be done only on self-assessment basis by the tax payers who has to retain the copy of the working for subsequent references and working.
With CBIC clarification, it is clear that the 20% cap on the eligible Input Tax Credit will not be calculated supplier-wise and GST payers can avail the input tax credit on a consolidated basis.
Interestingly, the provision is applicable from 9th October, 2019 i.e, the middle of the year or month. For ITC claim, Invoices uploaded by the supplies need to be checked which can be seen by downloading GSTR-2A from GST Portal.
Rule 59(3) of the CGST Rules, 2017 specifies that the details of all outward supplies furnished by the supplier shall be made available electronically to the concerned registered persons i.e the recipients in Part A of GSTR-2A after the due date of filing of GSTR-1s.
Now, every registered person is required to view the GSTR-2A for determining the due ITC and for filing his GSTR-3B. Total amount of ITC, even after the addition of 20% input tax credit over and above the eligible amount where invoice matching has been done, cannot exceed the total amount of input tax credit that can be claimed.
As expected, cap of 20% on availing input tax credit under the GST rule 36 (4) introduced on October 9th 2019 will not be applicable on following three cases:
- ITC in respect of the IGST paid on imports and these importers can directly avail the input tax credit;
- The cap of 20% will also not apply to those cases where GST has been paid under the Reverse Charge Mechanism (RCM).
- The ceiling of 20% on availing ITC will also not apply on Input Service Distributors (ISD), these are those businesses that receive invoices on behalf of the services used by their branches and subordinate offices.
The calculation would be based on only those invoices which are otherwise eligible for ITC. Accordingly, those invoices on which ITC is not available under any of the provision like section 17(5) of CGST Act would not be considered for calculating 20% of the eligible credit available. The amount of input tax credit in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under section 37(1) as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period. The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under section 37(1).