This means going forward, it will be mandatory for the buyers to match the ITC claimed with the details uploaded by the vendors.
In a major overhaul of how input credit is availed by businesses, the Government has proposed in case where there is a mismatch or details have not been uploaded by the suppliers, input tax claim will not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This is expected to have a significant impact on cash flow of firms.
“As per the amended CGST Rules (likely to become effective in days to come), input tax credit to be availed by a registered person, the details of which have not been uploaded by the suppliers, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This means going forward, it will be mandatory for the buyers to match the ITC claimed with the details uploaded by the vendors,” says Pritam Mahure, chartered accountant .
For example, say in the month of April, the input tax credit available (as per books) is Rs 1,500. Out of this, certain vendors wherein input tax credit involved is say Rs 500 have not filed their GSTR-1. Now, due to amendment, the buyer can avail ITC only to the extent of Rs 1,200 (i.e. 120% of R 1,000) and not 1,500.
“This restriction will actually mean that the Companies need to monitor whether the suppliers are uploading their returns on regular basis. Most Companies are likely to feel the pinch of the amendment (once it becomes effective),” says Mahure.
Given there is no matching of invoices taking place, taxpayers have been filing GSTR-3B. Subsequently, GSTR-2A as a return was automatically generated for a taxpayer from his seller’s GSTR-1. Any difference could be settled at a later date and there was no impact on what a taxpayer could claim as ITC in case there was mismatch. That is likely to change.
“The amendment has introduced another set of compliance on a monthly basis i.e. check GSTR-2A if the credit claimed doesn’t exceed GSTR-2A by 20% and also determine the credit which are ‘eligible’ out of the GSTR-2A before applying this 20% rule,” says PwC, Partner, Priyajit Ghosh.
“Prior to this notification, irrespective of the credit as reflected in GSTR-2A, credit was being claimed by the purchaser without any restriction, subject to fulfilment of other conditions. Now this credit has been restricted” said Harpreet Singh, Partner, in KPMG India
Singh echoes similar views when he states that this Notification now necessitates regular monthly reconciliation of input tax credit with vendor reporting. “Perhaps an increase in compliance burden” adds Singh.
Additionally, the notification states that after suspension of registration, businesses would be allowed to make taxable supplies, but not charge tax on supplies or issue a tax invoice. More importantly, GSTR-3B is to be treated as return under Section 39 and hence, credit would need to be availed by 30 September of the following financial year.
Abhishek Jain, Tax Partner, EY India, said in a statement, “The retrospective amendment of GSTR-3B being treated as a return under Section 39 would open a Pandora’s box for businesses who were planning to avail credits for FY 17-18 till the filing of annual return. Separately, with another ten days remaining for filing of GSTR-3B for the month of September 2019, companies would now on priority need to execute reconciliations for FY 18-19 to avail missed credits, if any.”
Jain adds that companies would now also need to execute an additional compliance of executing monthly reconciliation of credits vis-a-vis GSTR-2A; to ensure availment of unmatched credits only upto 20 percent of eligible credits reflecting in GSTR-2A. “The above new prescriptions may entail additional compliances for businesses; where these amendments (including retrospective amendment) are upheld by judicial forums,” said Jain.
Source- Economic Times.