Guidance Note- Claim of ITC as per GSTR 2B

Since implementation of GST, the claim of input tax credit has witnessed multiple amendments with Government’s intention to allow less and recover more and restricting the claim only if the invoices/debit notes are uploaded by the suppliers in GSTR-1. Through this write-up, we intend to cover the intricacies of claim of ITC from practical and accounting perspective working a ready reference for your business.

A. Legal Position upto 31.12.2021

A legal history with respect to claim of Input tax credit on transactions which are required to be reported in GSTR-1 is summarized below:

B. Legal Position w.e.f. 1^st January 2022

Now, new clause “(aa)” to Section 16(2) has been inserted vide Section 109 of the Finance Act, 2021 which was made applicable w.e.f. 01.01.2022 vide Notification No. 39/2021- Central Tax dated 21.12.2021. Further, consequent changes have been made in Rule 36(4) of CGST Rules, 2017 to align it with new clause (aa) of Section 16(2) of CGST Act, 2017.

Accordingly, w.e.f. 01.01.2022, a registered person shall be able to avail ITC in respect of only those invoices or debit notes the details of which have been furnished by the supplier in their GSTR-1/IFF and appearing in GSTR-2B.

C. Key Points

1. Earlier Rule 36(4) mandated claimed of ITC based on gross reconciliation (not supplier-wise) but now document-wise reconciliation is required to be done
2. In case of quarterly vendors filing GSTR-1 on a quarterly basis, ITC will be available only when the same is furnished by the vendors in GSTR-1 or in IFF on a monthly basis.
3. As per strict interpretation of the above provisions, since registered suppliers where recipient is paying tax under RCM i.e. legal services, transportation services etc. are required to upload the details of Invoices/Debit Notes in GSTR-1 as per Section 37(1) of CGST Act, 2017, the restriction of claim of ITC will apply even in case of inward supplies liable to RCM received from registered suppliers.
4. The restriction of ITC does not apply to import of goods from outside India including SEZ, import of services, ISD credit, RCM credit on supplies from unregistered persons
5. The matching of ITC should be done as per GSTR-2B and not GSTR-2A in terms of Rule 36(4).
6. Such amendment made effective w.e.f. 01.01.2022 shall apply to all the ITC taken on or after 01.01.2022, meaning thereby that such restriction would apply even if credit is taken on or after 01.01.2022 on invoices raised before 01.01.2022.

D. Key steps for reconciliation

Step 1: Booking of Input tax credit in books as per Purchase Register

• Purchase/Expense Account Dr.
• IGST ITC Receivable Dr.
• To Vendor Account Cr.

Further, one ledger Unreconciled/Deferred ITC A/c needs to be created to park ITC appearing in books but not claimed in GSTR-3B as it was not appearing in GSTR-2B

Step 2: Monthly document wise Reconciliation of ITC as per GST-2B after considering debit note and credit notes also

Step 3: Scenario analysis and taking action

E. Suggested Action Points

• All monthly vendors should be insisted to file GSTR-1 on or before due date to avail ITC on Invoice/Debit Note in same month
• All quarterly vendors should be insisted to upload Invoices/Debit Notes on a monthly basis in IFF on or before due date to avail ITC on Invoice/Debit Note in same month
• Monthly document-wise reconciliation of ITC as per books vis-à-vis ITC appearing in GSTR-2B should be done with the help of suitable software and in case any Invoice/Debit Note is not appearing in the GSTR-2B for the same month, the ITC of the same cannot be claimed. In such case, it would be advisable to park the same in a ‘Deferred/Unclaimed ITC account’ to claim the same in a month in which it is reported in GSTR-2B’.
• It is important to have an indemnity clause in agreement/POs to the effect that any loss of ITC due to non-filing of GSTR-1 by the vendors or wrong filing of GSTR-1 due to which invoice/debit note is not appearing in GSTR-2B will be indemnified by the vendor
• Robust system should be in place to have background checks of Vendors in terms of compliance rating and in case of doubt, suitable policy of retaining GST portion may be devised
• The ITC Tracker should be maintained for which suggested Template is enclosed herewith

Before parting

With clear mandate from Government to allow ITC only if the same appears in GSTR-2B, it is imperative to have robust internal control system to save and claim ITC on a timely basis which is as good as cash for any business.