Analysis of Rule 36(4) – Additional 20% ITC

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On 9th October 2019, a notification has been issued by the CBIC regarding the introduction of Rule 36(4) which says about the provisional availment of Input Tax Credit. The newly inserted rule says that the taxable person can avail the ITC at a tune of around 20% over and above the ITC that has been reflecting in the GSTR 2A of the taxable person. That means the taxable person can avail the credit of the Invoices and debit notes that have been uploaded by the suppliers in their respective GSTR 1 and apart from that they can provisionally claim 20% of the ITC over and above the Invoices and debit notes that have been reflecting in their GSTR 2A. The said sub rule has been effective from 9th October 2019 onwards.

Now, with this rule, the taxpayers and professionals have been in dilemma over how to claim the additional ITC, what would be the treatment of the ITC in the subsequent tax period, what would be the perimeters and duration over which the ITC needs to be cross checked with the GSTR 2A. The circular no. 123/42/2019 – GST clearly states that only those invoices that has to be uploaded by the suppliers under section 37(1) and which has not been uploaded shall be taken into consideration for calculation the 20% criteria. Hence, the taxpayers can claim the full ITC in respect of the IGST on imports, Reverse charge Mechanism invoices, ISD credit. However, the taxpayer cannot claim the credit in respect of the Invoices referred to in section 17(5) of the Act mentioned specifically in the Act.

Let’s understand the provision with the help of an example

M/s. XYZ Pvt Ltd has been dealing in the trading sector. In the month of November, the Company has purchased the Goods worth Rs. 10 Lakhs having tax rate of 18% i.e. Rs. 1,80,000/-. Now, while filing the GST for the month of October 2019, the Company has checked the GSTR 2A which says the possible scenarios:-

Case 1 – ITC of Rs. 1,20,000/- is being reflected

Case 2 – ITC of Rs. 1,50,000/- is being reflected

Case 3 – ITC of Rs. 1,60,000/- is being reflected

Case 1 – In the first scenario, the Company’s GSTR 2A only shows the ITC of Rs. 1,20,000/- . Now as per the new sub rule the Company shall be able to claim the ITC in the following manner:-

ITC as per GSTR 2A – Rs. 1,20,000/-

Additional ITC @ 20% – Rs. 24,000/-

Total ITC to be claimed – Rs. 1,44,000/-

That means, the shortage of Rs. 36,000/- while claiming the ITC.

Case 2 – In the second scenario, the Company’s GSTR 2A only shows the ITC of Rs 1,50,000/-. Now as per the new sub rule the Company shall be able to claim the ITC in the following manner:-

ITC as per GSTR 2A – Rs. 1,50,000/-

Additional ITC @ 20% – Rs. 30,000/-

Total ITC to be claimed – Rs. 1,80,000/-

In this case there is no shortage of the ITC claimed.

Case 3 – In the third scenario, the company’s GSTR 2A only shows the ITC of Rs. 1,60,000/- . Now as per the new sub rule the company shall be able to claim the ITC in the following manner:-

ITC as per the GSTR 2A – Rs. 1,60,000/-

Additional ITC @ 20% subject to ITC bills- Rs. 20,000/-

Total ITC to be claimed – Rs. 1,80,000/-

In this case, the Company can claim the complete ITC. However the provisional ITC should be Rs. 32,000/- according to the new sub rule but subject to the maximum ITC available as per the bills. So, in this case, only additional ITC of Rs. 20,000/- should be taken as per the new sub rule.

In all the above scenarios, the company has to cross check the GSTR 2A each and every month and to follow up with the suppliers regarding the filing of their GST returns. The remaining ITC can be claimed by the Company in the subsequent months while cross checking the ITC from the GSTR 2A.

Conclusion – There are some pros and cons of the new sub rule implemented by the CBIC in this regards. The advantage being the taxable persons can claim the ITC even of those invoices which have not been uploaded by the suppliers and thus, there is no loss of cash flow on account of non filing of the invoice by the suppliers. However, the real problem shall be in the case of the suppliers who file their GSTR 1 on the quarterly basis. In this case the taxpayers and the professionals shall have to constantly keep a tab on the GSTR 2A to reconcile the ITC on the real time basis. Thus, increasing the time and effort in this exercise.

 

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