What is Rule 36(4)?
•As per the new sub-rule (4) inserted in rule 36 of the Central Goods and Service Tax Rules, 2017, a taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) only to the extent of 10% 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 in the GSTR-2A only. The new percentage applies from 1 Jan 2020 onwards only. The ITC claim was earlier restricted to 20% for the period from 9 Oct 2019 till 31 Dec 2019.
Important Points of Rule 36(4):
• 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.
Eligible ITC is the ITC relating to a taxpayer’s business activities such as purchases made, services received, capital assets bought, etc. which is eligible to be claimed to set-off GST liabilities. The GSTR-2A 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 10% provisional credit.
Example to understand how eligible ITC will be computed:
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Table 1: Computation of Eligible ITC as per Books of Accounts |
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|
A |
ITC appearing in the books for Jan 2020 |
1,20,000 |
|
B |
ITC relating to business purchases for Jan 2020 (Eligible ITC) |
1,00,000 |
|
C=A-B |
Ineligible ITC reflecting in books in Jan 2020 |
20,000 |
|
D=B |
Total eligible ITC that can be claimed as per books for Jan 2020 |
1,00,000 |
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Table 2: Computation of Eligible ITC as per GSTR-2A |
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|
A |
ITC appearing in the GSTR-2A for Jan 2020 |
75,000 |
|
B |
ITC relating to business purchases for Jan 2020 (eligible ITC) |
60,000 |
|
C=A-B |
Ineligible ITC reflecting in the GSTR-2A in Jan 2020 |
15,000 |
|
D=B |
Total eligible ITC that can be claimed as per GSTR-2A for Jan 2020 |
60,000 |
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A (Table 1) – A (Table 2) |
Total ITC difference (between the books and the GSTR-2A) not reflecting in the GSTR-2A for Jan 2020 |
45,000 (1,20,000-75,000) |
|
D (Table 1) – D (Table 2) |
Eligible ITC difference (between the books and the GSTR-2A) not reflecting in the GSTR-2A for Jan 2020 |
40,000 (Rs.1,00,000-Rs.60,000) |
• As per the previous regulations, the taxpayer could have claimed the entire Rs.40,000 (Rs.1,00,000 – Rs.60,000) as provisional credit. Upon the enforcement of this rule, he will be able to claim only Rs.6,000 (Rs.60,000*10%) provisional credit in his GSTR-3B of January 2020. The balance can be claimed in a later tax period once the supplier has uploaded the pending invoices.
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 10% of these pending invoices uploaded.
How provisional ITC will be calculated in a later tax period, once pending invoices have been uploaded by suppliers?
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Computation of Provisional ITC on Pending Invoices Uploaded in January 2020 |
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Sl. No. |
Particulars |
Case I |
Case II |
|
A |
Provisional ITC claimed (as per example given above) |
6,000 |
6,000 |
|
B |
Provisional ITC remaining to be claimed (as per the example above) |
34,000 |
34,000 |
|
C |
Eligible ITC uploaded by suppliers in the month of Feb 2020 |
29,000 |
32,000 |
|
D=C*10% |
Provisional ITC which can be claimed for the month of Feb 2020 |
2,900 (29,000 |
3,200 (32,000 |
|
E=C+D |
Total ITC that can be claimed in Feb 2020 (ITC reported by suppliers + provisional ITC) |
31,900 |
34,000^ |
|
F=B-E |
Balance eligible ITC still not allowed in Feb 2020 |
2,100 |
Nil |
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^Provisional ITC cannot exceed the total eligible ITC available. As the total eligible ITC available is Rs.1,00,000 and Rs.66,000 had already been claimed in the month of Jan 2020, only the balance Rs.34,000 can be claimed now. |
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Legal consequences of availing excess ITC:
·There is no functionality currently available on the GSTN, however, the system can check where ITC exceeds the 10% limit and the AO may question and send notices where excess ITC has been claimed.
·As per sec 42 of CGST Act 2017, Any discrepancy arises either due to excess credit claimed by recipient or if the corresponding supplier fails to provide details of such supply in his return will be communicated to both supplier and recipient and If the discrepancy is not rectified, the ITC needs to be reversed by the recipient along with interest @ 18% as per section 50(1).
·Further, According to provision of sec 42 (10) of CGST Act,in case, the unmatched credit is availed back by the recipient, before the supplier has shown such supply in his valid return within the prescribed time limit, he shall be liable to pay interest @ 24% on such amount of unmatched credit. The chargeability of rate of interest has been provided in sec 50(3) of the CGST Act..
·
It can thus be seen that the interest of 24% will be applicable only in a case where :
- The discrepancy is communicated after matching the returns of supplier and recipient,
- Such credit is added back to the output tax liability of such recipient
- The recipient has again taken back such credit before the supplier declares it in his valid return.
Deferment of Rule 36(4) due to COVID-19:
·Attention may be given to Notification No. 30/2020-Central Tax, dt. 03-04-2020 posted on official gazette of India on April 03, 2020 vide G.S.R. 230(E) wherein it has been provided that said condition shall apply cumulatively for the period February, March, April, May, June, July and August 2020. Therefore, you are required to take effect of all adjustments for the period February 2020 to August 2020 while filing return for the tax period September 2020.
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