GST was implemented in our country from 1st of July 2017, bypassing the GST Act in the parliament on the 29th of March 2017. The main object of GST was to implement a simple tax structure with the concept of one tax across the country. Though there are many benefits of implementing GST, one of the main benefits was the elimination of the cascading effect of taxes (i.e.input tax credit received on services can be availed against tax to be paid on sales goods and vice-a-versa).
Despite the fact that GST has eliminated the cascading effect by allowing the input tax credit (ITC) on all services/goods, availing the same is not a simple task from October 2019 as new sub-rule (4) under rule 36 of the CGST Rules, 2017 was inserted by notification by CBIC on the 09th of October 2019.
Before we understand the new rule and its impact, let’s first understand the rule prior to 09th of October 2019 and its simplicity;
Rule before 09th of October 2019:
All taxpayers were allowed to claim ITC as per the ITC recorded in their books of accounts; it was not mandatory to reconcile the ITC figure claimed with the GSTR-2A. Even if the ITC reflected in GSTR-2A is lower than the books of accounts, the unreflected amount was treated as provisional credit and the taxpayers could claim full ITC as per the books of accounts in the GSTR-3B.
For example, if ITC as per books is Rs. 2, 00,000/- and ITC as per GSTR2A is Rs. 1, 00,000/-, the ITC to be availed under GSRT-3B is Rs. 2, 00,000/-
New Rule from 09th of October 2019:
The amount of ITC in respect of the invoices/debit notes whose details have not been uploaded by the suppliers shall not exceed 20% (10% from January 2020) of the eligible ITC available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under subsection (1) of section 37 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 sub-section (1) of section 37.
As per this new rule, continuing with the same example, ITC to be availed under GSRT3B will be Rs. 1,10,000/- (Rs. 1,00,000/- + 10% of Rs. 1,00,000/-). The balance Rs. 90,000/- can be availed only when the vendors/suppliers upload the details of the same under form GSTR-1.
ITC is reflected in GSTR-2A only after the vendors from which services are availed or goods have been purchased files there return GSTR-1 (return showing sales/services provided for the period) with correct GST numbers of its all customers.
Now after three months of implementation of the new rule, the taxpayers have started realizing its impact on its working capital. Because even if they had paid their vendors full amount including GST, they are unable to claim the ITC of the same and hence have to pay GST to the authorities if the vendor has not filed the GSTR-1 return reflecting the transaction (and the difference between the ITC as per the books and ITC as per GSTR-2A is more than 10%). This leads to an additional payment of GST by the taxpayer for that month impacting their working capital. As working capital is very important for the smooth functioning of the business, the taxpayer should try to avail full ITC for the month, for which they have to frequently (on a weekly or fortnightly basis) reconcile the input tax credit as per the books and as per GSTR-2A and follow up with those vendors who had not uploaded the details under form GSTR-1.
From the above explanation of the new rule, we can derive that now it has become mandatory to prepare a reconciliation of ITC as per books and as per GSTR-2A before filing GSTR-3B for optimal use of working capital.
CA. Rushil Sarang, Mumbai