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New Input Tax Credit rules: Only 20% of eligible amount can be claimed if suppliers don't upload GSTR-1

The new rules, called the Central Goods and Services Tax (Sixth Amendment) Rules, 2019, came into effect on October 9 amid dwindling GST collections

twitter-logo BusinessToday.In        Last Updated: October 11, 2019  | 13:05 IST
New Input Tax Credit rules: Only 20% of eligible amount can be claimed if suppliers don't upload GSTR-1
The total tax mop-up under the indirect tax regime stood at Rs 91,916 crore in September, the lowest in 19 months

The Central Board of Indirect Taxes and Customs issued a notification on Wednesday amending the rules for claiming Input Tax Credit (ITC) under the Goods and Services Tax (GST). In a move that will likely cause cashflow problems for businesses, the government has capped the ITC that a registered person can claim, unless the entire eligible amount is backed by relevant invoices or debit notes.

"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 [in Form GSTR-1]," read the notification. The new rules, called the Central Goods and Services Tax (Sixth Amendment) Rules, 2019, came into effect on October 9.

What does this mean for businesses

This means that businesses will now have to chase down their vendors to regularly upload their invoices every month if they want to claim the entire tax amount they paid on inputs or purchases. Previously, entities could self-assess their ITC claims on the basis of the invoice copy, without any such restrictions provided the criteria outlined in Section 16 of the CGST Act were fulfilled.

"Restriction of mismatched ITC by 20 per cent would necessitate undertaking monthly reconciliation of purchase, credit register with GSTR 2A, and hence may increase the monthly compliance burden," Harpreet Singh, partner at KPMG, told The Business Standard. The GSTR 2A is a purchase-related tax return that is automatically generated for each business by the GST portal when a seller files his GSTR-1, according to Cleartax.

In a similar vein, A2Z Taxcorp,  a boutique Indirect Tax firm, noted that the above amendment "may bring an incumbent task of regularly matching ITC details of taxpayers with those appearing in his GSTR-2A".

The logic behind CBIC's decision

The government introduced the new rule to crackdown on fake ITC claims amid dwindling revenue collections. GST collections dropped sharply to a 19-month low of Rs 91,916 crore in September, mirroring a widening slowdown in economy triggered by shrinking consumer demand. This was the second straight month of decline in the mop-up, according to official data released by the finance ministry. In comparison, the tax collections stood at Rs 98,202 crore in August and Rs 94,442 crore mop-up in the year-ago period. The government's monthly target is over Rs 1.1 lakh crore.

With PTI inputs

Also read: Govt sets up committee to look into GST revenue shortfall

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