What is the Input Tax Credit (ITC)?
The Input Tax Credit (ITC) is the tax paid on the purchase of goods or services which can be set off against the tax liability on the sale of goods or services.
How to avail Input Tax Credit (ITC) if your Supplier has not uploaded Invoices?
Generally, under the system of GSTR-1 and GSTR-3B, the tax credit is claimed by the recipient according to the sales invoice uploaded by the seller. However, the ITC claim will not be allowed if the supplier has not uploaded Invoices.
The ITC in the buyer’s account reflects as soon as the seller uploads the invoice, but in case of a delay, the buyer’s ITC cannot be availed for that particular month. In this case, the CBIC released an important notification on 9 October 2019, inserting under rule 36(4) of the CGST Rules, 2017.
This rule states that,
The provisional tax credit (without invoices on GSTR-2B) can be claimed in the GSTR-3B to the extent of 5% of eligible ITC reflected in the GSTR-2B.
Hence, the total ITC that can be claimed in GSTR-3B is 105% of the eligible ITC appearing in the GSTR-2B of a particular period. As per the sub-rule 4 inserted in rule 36 of the central Goods and Service Tax Rules, 2017 a taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) only to the extent of 5% of the eligible credit available in GSTR-2A.
The amount of eligible credit is arrived upon those invoices or debit notes, whose details have been uploaded by the supplier in the GSTR-2A only.
The new percentage applies from 1 Jan 2021 onwards. The ITC claim was earlier restricted to 10% between 1 Jan 2020 and 31 Dec 2020, whereas it was 20% for the period from 9 Oct 2019 till 31 Dec 2019.
After implementation of Tax Rule what changes will take place?
I will take an example to make you understand this thing.
If a taxpayer is filing his GSTR-3B for the month of January 2021, here is how he could claim the input tax credit in his GSTR-3B after the implementation of the rule.
- The total eligible ITC is Rs.1,00,000 ,eligible ITC available in the GSTR-2B will be Rs.60,000.
- ITC that can be claimed, as the provisional credit will be Rs.3,000 (60,000*5%),
- Total ITC that can be claimed in the GSTR-3B will be 63,000; and ITC not allowed in the GSTR-3B of January 2021 will be Rs. 37,000.
It is noteworthy that the amount of ITC that is not available this month, will become available once the seller uploads the corresponding invoice in their subsequent GST returns.
So, if the buyer’s GST liability is Rs.80,000, they will have to pay the balance amount of Rs.17,000 in cash (Rs.80,000 – Rs.63,000).
But if the entire ITC is available, the buyer need not pay anything in cash.
What is the Eligible ITC?
It is the ITC related to a taxpayer’s business activities such as purchases made, services received, capital assets bought, etc. which is eligible to be claimed to set-off GST liabilities.
The GSTR-2B could also contain ineligible ITC reflecting that relates to expenses such as food, club memberships, personal expenditure, etc or even ITC mistakenly reflected due to the wrong GSTIN entered by a supplier.
Hence, only eligible ITC will be considered while calculating the limit for 5% provisional credit.
In the initial phase of 6 months, the recipient will have an option to avail ITC on self-declaration basis even on the invoices not uploaded by the supplier by 10th of the next month by using the facility of availing ITC on missing invoices.
The input claimed on the missing invoices by the recipient shall be filed by the seller within the next two tax periods from the input claimed by the recipient.
If this is not filed by the supplier, the input claimed by the recipient shall be reversed with interest and penalty.
For example, if Mr. A purchased goods from Mr. B in the month of March 2018, Mr. B failed to report the same in the March 18 returns. Mr. A has an option to claim the credit in March 2018 returns and Mr. B has to report the same by May 18 returns. If Mr. B missed reporting the same by May 18 then the ITC claimed by Mr. A shall be reversed on June 18 returns with interest and penalty.