Wednesday, January 6, 2021

Changes in GST Input Tax Credit from 01-Jan-2021

ITC Maximum up to 105% of Available Credit in GSTR-2B

As per Rule 36(4) of the CGST Rules, the restriction of claim of Input Tax Credit (ITC) in respect of invoices or debit notes not furnished by the suppliers has now been reduced from 10% to 5% of the credit available in GSTR 2B.

Thus, it is reiterated to all registered persons and their accountants that to avail full input tax credit, ensure that all vendors upload the invoices in GSTR-1 and/or IFF and file the returns on time.

The GST Department may not allow ITC only on the basis of availability of invoice from the vendor, which may lead to dispute with the Department, and may also not be allowed by the GST Auditor at the time of filing of GSTR-9 and GSTR-9C for the year.

Communication with Defaulting Vendors

A registered person can communicate with its defaulting vendor through the GST portal itself, informing them of missing documents or shortcomings.

The person may access such facility by going to "Services" tab on the portal, and then selecting the "Communication Between Taxpayers" option under "User Services".

An Inbox and Outbox would also be available to track responses and follow ups.

We recommend that businesses use such facility where they feel that the loss on account of input tax credit due to vendor's default in filing returns may be high, and they would want to create a written trail to later seek their right to claim the credit with the department if the vendor continues to default.

Documents may also be allowed to be uploaded along with such notifications.
Further, the notification sent will also be intimated to the recipient's registered email ID and phone number.

For Persons having Turnover > Rs. 50 Lakh per month

As per Rule 86B of the CGST Rules, businesses with monthly turnover of over Rs. 50 lakh will have to mandatorily pay at least 1% of their GST liability in cash. This means that if your monthly value of taxable supply exceeds Rs. 50 lakh, you cannot utilize ITC to pay more than 99% of the output tax liability.
However, this restriction would not apply in the following cases:

(i) The registered person, its Proprietor/Karta/MD, or any of its two Partners/Whole-time Directors/Members of Managing Committee (as the case may be) have paid Income Tax of more than Rs. 1 lakh in each of last two financial years

(ii) The registered person has received a refund of more than Rs. 1 lakh in the preceding financial year on account of export under LUT/ Bond or under the inverted tax structure.

(iii) The registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, up to the said month in the current financial year.

(iv) If the registered person is the Government Department, Public Sector Undertaking, Local Authority or Statutory Body.

Further, the 1% cash liability in terms of Rule 86B does not include payment made through cash liabilities in the nature of RCM transaction.

ITC on Debit Note

The time limit for availment of ITC on a Debit Note (DN) would be computed from the date of the DN and not based on the date of the Invoice related to such DN.

Thus, if you receive a DN pertaining to an Invoice relating to an earlier year and the time for availing ITC for such financial year has passed, you can still take the ITC from the date of the DN regardless of the date of original invoice to which it relates.