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Note on GSTR 2A- 20% provision and accounting entries

Note on GSTR 2A- 20% provision and accounting entries

The present note seeks to discuss the provisions regarding restriction of credit availment to the extent of 20% which is to be implemented with effect from October, 2019. A new sub-rule (4) has been inserted in Rule 36 dealing with conditions for claiming input tax credit which reads as follows:

“(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 with respect to invoices or debit notes which have been uploaded.

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

(a)  ITC reflected in GSTR 2A in October 2019 Rs. 1,00,000

(b) Ineligible Credit as per 2A out of (a) above Rs. 20,000

(c)  Therefore, Eligible Credit i.e (a)-(b) is Rs.80,000

(d) ITC as per books of accounts is Rs.1,50,000

(e)  Provisional ITC (20% of the limit) that can be claimed =20%*80000= Rs.16,000

(f)   Total ITC eligible for availment in 3B return =80,000+16,000
=Rs.96,000

(g)  Credit to be transferred in unclaimed account in books of accounts 1,50,000-96,000=Rs.54,000

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, in-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. We can maximize our credit availment by doing various permutation and combination of invoices but it will be nearest to 20%. Suppose in above example, 20% comes to Rs. 16,000/- but the combination of invoices not uploaded by the supplier is Rs. 15,272/- and rest all invoices involve credit greater than Rs. 10,000/- then we should avail Rs. 15,272/- and not Rs. 16,000/- in GSTR-3B. In nutshell, the credit availment to the extent of 20% should also be supported by invoices and should not be on ad-hoc basis.

Furthermore, 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 CGST 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.

The invoices which were transferred to unclaimed ledgers in the previous month and are duly reflecting in updated GSTR 2A of next months and previous months would be transferred to input credit ledgers.

Entries would be-

Input CGST a/c       Dr

Input SGST a/c       Dr

To Unclaimed Input CGST a/c ….
To Unclaimed Input SGST a/c ….

A taxpayer will have to reconcile ITC between books of accounts and Form GSTR-2A in 8 days, i.e. starting from 12th of the succeeding month and before 20th of such month before filing Form GSTR-3B. It is practically impossible to undertake such detailed exercise in such a limited time frame.

Another critical aspect which stands unaddressed relates to the cases wherein a taxpayer has significant procurements from vendors who file quarterly Form GSTR-1. The ITC owing to such vendors shall always be in the unmatched bucket, which will have to be reconciled on quarterly basis. Hence, in first two months of the quarter, the taxpayer will have to forego validly due ITC.

Goods-in-transit is a common practice in business, and it is only logical that some procurement at month-end will be received in next month. Under GST, ITC on such invoices can be availed in month of receipt. Hence, a monthly reconciliation will have mismatches related to goods in transit (both opening and closing), and opening goods-in-transit needs to be matched by the taxpayer by analysing Form GSTR-2A of the previous month.

 

This provision has increased the complications further for the taxpayer and instead of availing this benefit of availing credit pertaining to invoices not uploaded by the supplier to the extent of 20% of the eligible credit appearing in GSTR-2A, the taxpayer can simply follow the policy for availing eligible credit that is being reflected in GSTR-2A. This will save them from the reconciliations to be made every month with respect to 20% calculation.

 

The content of this GST update is for educational purpose only and not intended for solicitation.You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on twitter at https://www.twitter.com/@capradeepjain21

 

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