The cascading impact that lingered below excise, VAT and service tax can be removed in Goods and Services Tax (GST) by enabling an uninterrupted and seamless chain of Input Tax Credit (ITC). ITC is the GST paid by the purchaser when buying goods or services, and it is lowered from liability payable on outward supplies. In uncomplicated words, ITC is the tax that is lowered whilst paying output tax on sales.
Steps to claim ITC
- First of all, the recipient need to be registered below GST to claim ITC and need to fulfil ALL the situations described beneath:
- The recipient possesses the tax invoice
- The goods or services had been received
- The supplier filed the returns
- The supplier paid the tax charged to the government
- When goods are received in instalments, ITC need to be claimed only when the last lot is received
- ITC will not be permitted if depreciation has been claimed on the tax element of a capital great
Documents needed to claim ITC
- Coming to the documents needed for claiming ITC, the registered taxpayer need to possess at least one document from the list beneath:
- Invoice issued by a supplier of goods or services or each
- Invoice issued by the recipient along with proof of payment of tax
- A debit note issued by a supplier
- Bill of entry or comparable document in case of imports
- Revised invoice
- Document issued by Input Service Distributor (ISD)
The ITC claim course of action is important in GST return filing. The flow of ITC begins from the supplier’s finish from whom the goods or services are bought. Whenever the supplier uploads invoices in his GSTR-1, it will be reflected in the GSTR-2A and GSTR-2B of the recipient.
It is to be noted that ITC can be claimed only for enterprise purposes and is not obtainable for any goods or services exclusively made use of for exempt supplies, private use, or any supplies for which ITC is not obtainable.
In the initial years of GST, the suppliers have not correctly uploaded the invoices in GSTR-1, and couple of taxpayers have not filed the GSTR-1 return at all. Hence, the recipient could not get the ITC in their GSTR-2A, and the invoices missing in GSTR-2A are named missing invoices. However, the recipients claimed ITC on missing invoices without having thinking of GSTR-2A and the GST law. Taking benefit of the predicament, couple of taxpayers claimed the ineligible ITC also.
What is provisional ITC?
To nudge the suppliers to upload invoices, file GSTR-1 and curb the claims of ineligible ITC, the government introduced the notion of provisional ITC by means of CGST rule 36(4). Provisional ITC refers to ITC, which can be claimed even if ITC is not obtainable in GSTR-2A.
Initially, provisional ITC is restricted to 20% of the eligible ITC obtainable in GSTR-2A. Later, the provisional ITC was lowered to 10%, and lately the government restricted provisional ITC to the extent of 5% only. Hence, as per CGST rule 36(4), a taxpayer filing GSTR-3B can claim provisional ITC only to the extent of 5% of the eligible credit obtainable in GSTR-2B (earlier, GSTR-2A was regarded as).
In uncomplicated words, the total ITC that can be claimed in GSTR-3B is 105% of the eligible ITC appearing in the GSTR-2B of a specific period. So, a taxpayer need to cross-verify the ITC in GSTR-2A ahead of proceeding to file GSTR-3B. Hence, one need to constantly reconcile their ITC employing GSTR-2A and comply with-up with their suppliers for uploading missing invoices, if any.
What is Rule 86B?
Recently, the government introduced Rule 86B that limits the use of ITC obtainable in the electronic credit ledger for discharging the output tax liability. Rule 86B has an overriding effect on all the other CGST Rules. This rule applies to registered persons with a taxable worth of provide (other than exempt provide and zero-rated provide) in a month that is more than Rs.50 lakh. The limit has to be checked each and every month ahead of filing GSTR-3B.
Rule 86B states that more than 99% of the output tax liability can not be discharged employing input tax credit. However, the division has offered couple of exceptions to this rule, which includes paying more than Rs.1 lakh revenue tax or a particular person who got a refund of more than Rs.1 lakh, government division, public sector undertaking, regional authority, or statutory authority and so forth.
CBIC clarified that 1% is to be calculated on the tax liability but not on the turnover of the respective month. Hence, one need to discharge 1% tax liability in money if he/she does not fall into the exceptions category and performing this process for each and every GSTIN would be tedious.
Coming to the reporting of ITC, all common taxpayers need to report the quantity of ITC in their GSTR-3B. Table 4 of GSTR-3B calls for the summary figure of eligible ITC, ineligible ITC and ITC reversed through the tax period.
Hence, whilst claiming ITC in GSTR-3B, one need to possess the needed documents and contemplate GSTR-2B, provisional ITC guidelines, rule 86B.
by, Archit Gupta, Founder and CEO – ClearTax