India’s most celebrated “Good and Simple Tax”, GST law has never stopped getting attention of the citizens since its implementation. The five-year old law, which is already gone through hundreds of amendments so far has undergone some major changes this year, including change in GST return format.
One such amendment has been recently notified by the government vide Notification No. 14/2022 – Central Tax dated July 5, 2022, in Table 4 of GSTR 3B, meant for Input Tax Credit (ITC) related information. The said changes have been made available on the GST portal since September 1, 2022. In brief, the government has majorly changed the following two aspects.
Firstly, mandatory reporting of reversals on account of ineligible ITC in Table 4(B) (1) which are permanent in nature and are not reclaimable, for e.g., blocked credits under section 17(5), reversals under Rule 42 & 43 on account of exempt supplies, etc.
Secondly, reporting of ITC reversals not permanent in nature in Table 4(B)(2) and reclaim the same in Table 4(A)(5) with specific reporting of the said information in Table 4(D)(1) as well [this is a new Table inserted now]. This will include ITC reversals on account of non-payment to vendor within 180 days, reversal of ITC appearing in GSTR 2B but not accounted in books, etc.
The above two changes in reporting of reversals of ITC in accordance with the GST provisions were required earlier as well. However, the changes were not so explicitly followed by the majority of taxpayers and only eligible ITC or ITC available and ITC-reversed was being captured in GSTR 3B. Such changes will bring in more clarity in reporting by taxpayers and will help investigators reconcile the figures of GSTR 3B with the books for better tax administration.
With the amendment, the Government is aiming to auto-populate and co-relate the information of GSTR 3B with GSTR 2B, and that of GSTR 9 with GSTR 3B; and to ensure uniformity in the practice followed in reporting ineligible ITC as well as various reversals of ITC in GSTR 3B. However, this has now elevated the complexity involved in filing of GSTR 3B which was supposed to be a ‘summary return’ at the time of its implementation.
However, one of the major challenge after this amendment would bethe non-accounting of ineligible ITC under section 17(5) separately in ERP.In most companies, the accounting process of vendor invoices is structured in such a manner that the GST amount, which is ineligible for ITC, is not recorded separately rather the entire transaction amount is booked in the expense GL itself. Thus, it is difficult to extract a report of ineligible ITC booked during a period. In light of the recent amendment, companies will have to restructure the said process and have a separate GL/report for ineligible ITC, but this should include a lot of configurations in theirrespective ERP system(s) as well in their AP process, which is both time consuming and comes with a cost.
Further,under Rule 42, sub-rule (2) provides for re-computation of reversal of ITC on account of exempt supplies at year-end basis the turnover of entire financial year and requires the taxpayer to either reverse the deficit ITC amount not reversed earlier or to avail the ITC amount reversed in excess in monthly returns. In that way, the reversals made on monthly basis under Rule 42 may not be called as absolute, and the taxpayer may require to reclaim the same at a later stage. The lack of mechanism for making the said adjustments would definitely create problems for taxpayers. A clarity on this aspect can be expected soon. Similarly, if there is any inadvertent mistake in reporting of information in Table 4(B)(1), there is no mechanism explicitly provided for correction of the same.
As per the clarification issued vide Circular No. 170/02/2022-GST dated July 6, 2022, it is evident that a taxpayer is required to report the information in Table 4(A) as auto-populated in GSTR 2B of the said month. This will entail reconciling all the line items of GSTR 2B, including the ineligible ITC and reconcile with the purchase register of the said month. This will be important for being able to report correct information in Table 4(B) in terms of ITC reversals and to ensure that the “Net ITC availed” amount in Table 4(C) reconciles with the ITC amount as per books. There is no doubt that this willincrease the burden of compliance on the taxpayers, especially for the companies – Not having the data of ineligible ITC readily available from their ERP; Using manual option to reconcile their eligible ITC with GSTR 2B due to limited quantum of data; and Having only exempt supplies (such as companies involved in generation & sale of electricity) and are not eligible for any ITC, but since the numbers of ITC will still auto-populate from GSTR 2B, they will have to reconcile the same and ensure making reversals of the same.
Support our journalism by subscribing to TaxscanAdFree. Follow us on Telegram for quick updates.
