Capping of GST input tax credit

Introduction

In line with the GST Council’s decision of the 37th Council meeting on capping input tax credit, Sub-Rule (4) to Rule 36 of the CGST Rules, 2017 has been inserted vide Notification 49/2019 dated 9th October 2019.

This amendment makes it mandatory to review inputs as appearing in GSTR-2A of the taxpayer. It mandates that the taxpayer shall not avail input in excess of 20% of the eligible credit available in GSTR-2A over and above the eligible credit.

To achieve this, the taxpayer has to conduct a monthly reconciliation of input with GSTR-2A and then avail the input accordingly — maximum capped to 120% of eligible credit available — in GSTR-3B.

How This Will Operate

Suppose a taxpayer is filing GSTR-3B regularly, where outward supplies and input tax credit are claimed and taxes are paid on a summary basis.

  • The taxpayer has invoices and debit notes amounting to Rs. 50,000/-.

  • Eligible input appearing in GSTR-2A is Rs. 40,000/-.

Prior to applicability of this notification:
The taxpayer could have claimed the entire Rs. 50,000 based on his own records.

After applicability of this notification:
The provisional ITC claim cannot exceed Rs. 48,000/-, calculated as follows:

  • Rs. 40,000 – Actual ITC based on information available in GSTR-2A.

  • Rs. 8,000 – 20% of eligible credit of Rs. 40,000.

Open Points Needing Clarification

There are certain open points that need to be addressed and for which clarification is sought:

  1. Quarterly Filers – Availing Input:
    How to avail input with regard to supplies where the supplier files quarterly outward supplies return (GSTR-1)?

    • Should this input be taken after the return is filed by the supplier?

    • If yes, this would lead to deferment in availing ITC and would adversely impact the business of suppliers filing quarterly returns.

  2. Monthly Limit Assumption:
    Whether it is assumed that the input with regard to supplies where the supplier files quarterly outward supplies return will not exceed 20% of the eligible credit in any month?

  3. Unfiled but Submitted Returns:
    Whether ITC would be available for entries where the supplier has uploaded the data or submitted the return but not filed the same?

  4. Reverse Charge Input Inclusion:
    Whether input on reverse charge basis would be taken into consideration for calculating eligible credit available?

Conclusion

The Government is yet to come up with clarification on this rule, without which it will lead to more uncertainty among businesses.

This notification will come into effect from the date of its publication in the Official Gazette.

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