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What is Input Tax Credit under GST - How to Claim and Calculate it?

November 08, 2019

Input Tax Credit Under GST

On October 09, 2019 the Central Board of Indirect Taxes & Customs (CBIC) certain important notifications on GSTR-3B. This action is taken by the government with the intention of socking revenue leaks. This articles details about the various aspects you should necessarily know about ITC calculation…

What is Input Tax Credit (ITC)?

Input Tax Credit(ITC) reduces taxes paid on inputs from taxes that are to be paid on output. When a taxable person is supplied with goods or services, the GST charged is called the Input Tax. Input Credit Mechanism is available to you when you are covered under the GST Act. This model earlier existed in pre-GST Indirect Taxes administration like Service Tax, Excise Duty, VAT etc. Presently, the possibility of Input Tax has been broadened.

What is the New Notification Issued for Input Tax Credit?

The government added a sub-rule (4) in the existing rule 36 that states:

“ITC to be availed by a registered person in respect of invoices or debt notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20% of the eligible credit available in respect of invoices or debt notes, the details of which have been uploaded by the suppliers under sub-section (1) of section 37.”

The new GSTR-3B Notifications 

  • All taxpayers filing GSTR-3B can claim provisional ITC credit only to the maximum limit of 20% of the eligible credit obtainable. This claim will be aligned with details of invoices or debt notes uploaded in GSTR-2A by the suppliers.
  • GSTR-3B has replaced GSTR-3 and GSTR-2 altogether and has been qualified as a statutorily valid return, as against its status as temporary return after which the taxpayer was supposed to file GSTR-3. It was only after October 9, 2019 that GSTR-3 was replaced with GSTR-3B as a valid return.

Major changes in Provisional ITC claim in GSTR-3B?

  • As directed by the government, the taxpayer will have to calculate the provisional ITC at a maximum cap of 20% with respect to the invoices that are not uploaded by the suppliers. Whether or not the said invoices have been uploaded by the supplier does not matter hereafter.
  • The notification does not specify whether 20% ITC is to be calculated for every supplier or as a total figure which is the aggregate of all suppliers.
  • After this notification as GSTR-3B has become a valid return. As the aftermath, there is uncertainty in whether ITC claims after March 2019 for the FY 2017-18 will become invalid or not.
  • Taxpayers have to settle Year-To-Date (YTD) for FY 2018-19 that so far was under GSTR-2A with GSTR-3B of September 2019. The taxpayers cannot go by the annual return due date like before.

What are the Impacts of the new ITC notifications?

  • The cash outflow towards GST payment remitted by the registered taxpayer will increase
  • Complications are expected to be abound while calculating admissible credit
  • Small business will have an adverse effect due to the quarterly return filing 
  • Credit calculation will change according to the suppliers’ unaligned return filing practices.

Every business has tax obligations and ITC coming under GST and its conditions alongside are one of the main influential factors of the same. Tax Credit is very vital for supporting the country’s tax regime and is one of the key areas where timely attention is necessary for registered taxpayers to self-update and take necessary actions.

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