How to Calculate 5% Provisional ITC in FORM GSTR-3B as per the CGST Rule 36(4)?

Introduction

Initially registered persons could claim Input Tax Credit on a self-declaration basis in Table 4(a) of GSTR-3B. The ITC that could be claimed on a self-declaration basis included a summary figure of IGST, CGST and SGST. There was no requirement for reconciliation with GSTR-2A until clause 4 was added to the rule 36 of CGST rules through notification no. 49/2019 dated 9th October 2019.

What is Rule 36(4) of CGST Rules?

As per Rule 36(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 five percent of the eligible credit available in GSTR-2A. The amount of eligible credit is arrived upon those invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 in GSTR-2A only.

The provisional ITC amount is restricted only to the extent of 5%* of the eligible ITC value already reflected in the GSTR-2A for that period w.e.f 1st January 2021. The said restriction on eligible ITC amount was 10% with effect from 1st January 2020 up to 31st December 2020 and was earlier restricted to 20% for the period from 9th October 2019 up to 31st December 2019.

Decoding Rule 36(4) of CGST Rules

Let's understand how Rule 36(4) of CGST Rules work with an example. Suppose a registered person is filing his GSTR-3B for the month of January 2021 and this is how he would compute and claim Input Tax Credit in his GSTR-3B.

Below example provides how the ITC is claimed before and after implementation of Rule 36(4)

Eligible ITC is the ITC relating to a taxpayer's business activities such as purchases made, services received, capital assets purchased, etc. which is eligible to be claimed to set-off GST liabilities. The GSTR-2B could also contain ineligible ITC reflecting that relates to expenses such as food, club memberships, personal expenditure, etc or even ITC mistakenly reflecting due to the wrong GSTIN entered by a supplier. Hence, only eligible ITC will be considered while calculating the limit for 5% provisional credit.

How is Eligible ITC computed?

Let's continue with the above example.

Computation of Eligible ITC as per books of accounts

Computation of Eligible ITC as per GSTR-2B

As per the previous regulations, the taxpayer could have claimed the entire Rs.20,000 (Rs.1,00,000 – Rs.80,000) as provisional credit. Upon the enforcement of this rule, he will be able to claim only Rs.4,000 (Rs.80,000*5%) in his GSTR-3B of January 2021. The balance can be claimed in a later tax period once the supplier has uploaded the pending invoices.

How to claim balance ITC?

The balance ITC that has not been claimed as provisional ITC may be claimed in the succeeding months once details have been actually uploaded by the suppliers. If a supplier has only uploaded part of the pending invoices in a later period, the taxpayer will be able to claim ITC only proportional up to 5% of these pending invoices uploaded.

Here is an illustration of how provisional ITC will be calculated in a later tax period, once pending invoices have been uploaded by suppliers:

(Amount in Rs)

Provisional ITC cannot exceed the total eligible ITC available. As the total eligible ITC available is Rs.1,00,000 and Rs.84,000 had already been claimed in the month of Jan 2021, only the balance Rs.16,000 can be claimed now.

Points to be considered while claiming provisional credit

1.The restriction on 5% provisional credit will not be supplier-wise. It will be linked to the total eligible ITC from all suppliers based on details uploaded in the GSTR-2B.

2. The restriction on provisional credit will apply to those invoices/debit notes which were supposed to be uploaded by the suppliers and have not been uploaded. This means that a taxpayer can avail full ITC in terms of IGST paid on imports, credit that has been received from an Input Service Distributor (ISD), credit from documents received under reverse charge mechanism and any other such credit.

3. If part of the pending invoices of a supplier is uploaded in a later month, the taxpayer must make sure that provisional credit does not exceed 5% of eligible ITC.

4. The provisional ITC availed in a tax period shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC. This means that the LOWER of provisional ITC or difference in eligible ITC (between books and GSTR-2B) will be considered.

For Ex: If the suppliers have uploaded invoices having eligible ITC worth Rs.85,000 in the GSTR-2B, and the total eligible ITC reflected in the books is Rs.1,00,000, then the provisional ITC will amount to Rs.4,250 (Rs.85,000*5%). In this case, the provisional ITC claim will be capped at Rs.15,000 (Rs.1,00,000-Rs.85,000) as the total ITC claimed cannot exceed the total eligible ITC available in a tax period.