GST Update on Restrictions on availment of ITC

Restrictions on availment of ITC

We have already informed you about the restriction of 20% on taking of credit. We are discussing in depth about this provision. Following new sub-rule (4) has been inserted in Rule 36 dealing with conditions for claiming input tax credit:

“(4) 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 percent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”

Hence the above inserted sub-rule provides that the availment of ITC with respect to the invoices or debit notes not uploaded by the supplier cannot exceed 20% of the eligible credit in respect of invoices or debit notes which have been uploaded.

Let us understand this with the help of an example. Suppose Mr. A registered person is a registered person in GST era.

(a)	ITC reflected in GSTR 2A in October 2019	Rs. 1,00,000
(a)1	Ineligible Credit as per 2A out of (a) above	Rs. 20,000
(a)2	Therefore, Eligible Credit i.e. (a)-(a)1	Rs.80,000
(b)	ITC as per books of accounts	Rs.1,50,000

	Provisional ITC (20% of the limit) that can be claimed	=20%*80000= Rs.16,000
(c)	Total ITC eligible for availment in 3B return	=80,000+16,000 =Rs.96,000
(d)	Credit to be transferred in unclaimed account in books of accounts	=80%*80,000=Rs.64,000

ITC will be restricted for buyers if suppliers have not uploaded invoice and paid tax. Buyers will be able to claim only 20% provisional ITC. Provisional ITC will be a maximum of 20% of the ITC available as per GSTR-2A i.e. 20% of ITC for invoices that have been uploaded by suppliers.

The inserted rule does not elaborate the term eligible credit. However, depth analysis of the term depicts that eligible credit is the total credit reflected in the GSTR 2A for a particular period or month. However, this credit excludes ineligible credit as per Section 17(5), credit pertaining to exempt supplies, reverse charge supplies reflecting in 2A return etc.

However, the credit to be taken cannot be exactly 20%, it has to be based on the invoices only. You can maximize your credit by doing various permutation and combination of invoices but it will be nearest to 20%. Supposing in above example, 20% comes to 1,19,200/- then you should avail so and rest of the invoices cannot be availed.

Moreover, credits which cannot be availed due to 20% restriction are supposedly to be debited in unclaimed ledgers in our books of accounts rather than directly posting in Input ledgers.
The entry would be as follows-
Purchases a/c Dr……
Unclaimed Input CGST a/c Dr….
Unclaimed Input SGST a/c Dr….
To Sundry Creditors a/c………
Or else at the end of the month, you can pass the entry and transfer from Input SGST and Input CSGT to unclaimed credit account. Now, it is not clear that 20 percent will be applicable for each account of CGST, SGST and IGST separately or overall restriction will be applicable. If overall restriction is applied then everyone will take 20 percent IGST credit which can be utilized in payment of any account.

Every month while reconciling GSTR 2A with the books of accounts, the excess credit remaining after availing 20% credit will be transferred to Unclaimed input ledgers.

There are certainly many more practical difficulties which will be faced by the assessee while complying with the inserted rule. Now continue with the same example, suppose, the next month figures are as under:-

(a)	ITC reflected in GSTR 2A in November 2019	Rs. 2,00,000
(a)1	Ineligible Credit as per 2A out of (a) above	Rs. 50,000
(a)2	Therefore, Eligible Credit i.e. (a)-(a)1	Rs.1,50,000
(b)	ITC as per books of accounts	Rs.2,50,000

The issue under consideration is basically with the calculation of eligible credit for each period and maintenance of accounts.

The major questions arises –
While matching GSTR 2A of the next month, some of the invoices of previous month is uploaded. invoices pertaining to Rs. 50,000 of the previous month are uploaded by the supplier. This includes some credit which has been considered in 20% limit and credit has been availed instantly in October 2019. Out of Rs. 50,000 uploaded of previous month, 30000 credit is pertaining unclaimed credit and 20,000 to claimed invoices of previous month. Now the problem comes up with the calculation of eligible ITC for the November 2019 month.

There are different schools of thoughts for calculating eligible credits.
(1) Technically, Eligible credit for the month of Nov 19= invoices which were unclaimed last month uploaded in GSTR2A in this month (30,000 in example)+ eligible credit reflected in 2A of Nov19
(2) However some experts are of view that the calculation should include absolute figure of Rs. 50,000 for the purpose of eligible credit. But the credit of 20,000 is already taken. However, this school says that 20,000 was never considered for 20 % limit although these are now uploaded in GSTR-2A.

If accumulated credit is taken for calculating eligible credits, then assessee has to devote his day and night in matching GSTR 2A of all the previous months which is a very tedious task and never ending exercise. The assesse was not able to do it on annual basis but whether they can do it on monthly basis and that too in a limited time.

All GSTR-1 will be uploaded on 11^th, hence GSTR-2A will probably come on 15^th for all assessees. Then they have to reconcile the same for all earlier months within 5 days and then file the returns.

In addition to this, how the assessee will do accounting entries relating to input tax credit which are ineligible due to 20% limit but eligible as per GST law that too month wise in their books of accounts. Maintenance of accounts as per this rule will be an impossible task for the accountants.
Another implication of this amendment is for small providers who file quarterly returns. Their credit will be available to purchaser on quarterly basis. But that will not be acceptable to large units. They will not trade with small assesees. Hence, they will be compelled to opt for monthly returns.

It does not seem to be practically possible to implement this situation. The views and suggestions from all netizens are invited on this burning issue.

The content of this GST update is for educational purpose only and not intended for solicitation.
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GST Update on Restrictions on availment of ITC

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