Since the GST execution, the claim of the ITC has seen various changes with the government’s purpose to permit lower and recover more and limiting the claim only when the invoices or debit notes would be uploaded through the suppliers in GSTR-1 form. From this article, we pose an intention to undergo the difficulties of Input Tax Credit claim from the aspect of practical and accounting.
ITC Claiming Situations up to 31st Dec 2021
The lawful history towards the ITC claim on the transaction where it needed to be reported inside the GSTR 1 form is explained below:
| Period | Legal Position |
|---|---|
| 01.07.2017 to 08.10.2019 | No express provision to claim the ITC only when that appears in GSTR-2A/2B |
| 09.10.2019 to 31.12.2019 | Rule 36(4) has been inserted to limit the claim of ITC of up to 120% which is subjected for ITC towards which the documents have been uploaded through the supplier in GSTR-1. |
| 01.01.2020 to 31.12.2020 | The limit beneath rule 36(4) was amended from 120% to 110% |
| 01.01.2021 to 31.12.2021 | The limit beneath rule 36(4) has been amended from 110% to 105% |
GST ITC Claiming Situations from 1st January 2022
Now, a new clause “(aa)” to Section 16(2) has been inserted vide Section 109 of the Finance Act, 2021 that made applicable w.e.f. 01.01.2022 vide Notification No. 39/2021- Central Tax dated 21.12.2021. Moreover, resulting amendments have been created in Rule 36(4) of CGST Rules, 2017 to align it with new clause (aa) of Section 16(2) of CGST Act, 2017.
As per that w.e.f. 01.01.2022, an enrolled individual would be enabled to claim the Input tax credit for those invoices or debit notes the information of which has been filed through the supplier in their GSTR-1/IFF form and emerging in GSTR-2B form.
Essential Key Points for ITC
- Before that, Rule 36(4) was the essential claim of the input tax credit on the grounds of gross reconciliation (not supplier-wise) however now the document-wise reconciliation is needed to get executed.
- For the concern of quarterly vendors used to furnish the GSTR-1 upon the quarterly grounds, the input tax credit would be available when that is filed through the vendors inside GSTR-1 or in IFF on a monthly grounds.
- Under the tightened explanation of the mentioned above provisions since the enrolled suppliers in which the recipient used to furnish the tax beneath the RCM that is lawful servers, transportation, services, and others are needed to upload the information of the invoices or debit notes in the GSTR-1 under section 37(1) of CGST Act, 2017, the limitation of the claim of ITC would be applicable for the concern of the inward supplies subjected to RCM obtained from the enrolled suppliers.
- The limitation of the Input tax credit would not be applicable to the import of goods from outside India along with the SEZ, import of services, ISD credit, Reverse Charge Mechanism (RCM) credit on supplies from the unregistered individual.
- According to GSTR-2B and not GSTR-2A towards Rule 36(4) the matching of ITC is to be executed.
- These changes would be introduced w.e.f. the date 01.01.2022 and will apply for all input tax credit availed on or post 01.01.2022 which pointed towards that such limitation is to be applicable even when the credit is availed on or post 01.2022 on the invoices raised prior to the date 01.01.2022.
Steps for the Proper ITC Reconciliation
Step 1: Booking of ITC in the record of per Purchase Register
- Purchase/Expense Account Dr.
- IGST ITC Receivable Dr.
- To vendor account cr.
Moreover, one ledger unreconciled or deferred ITC A/c required to be made to park input tax credit that appears inside the books however not being claimed in GSTR-3B return as this was not present in the GSTR-2B.
Step 2: Monthly document-wise reconciliation of the input tax credit under GST-2B post acknowledging the debit note and credit notes indeed.
Step 3: Strategy analysis and taking action
| Scenario | Criteria | Action in GST-3B and books |
|---|---|---|
| The invoice accounted for the books and appears in the GSTR-2B of January 21 | MATCH | ITC would be availed as per the eligibility in the GSTR-3B |
| The invoice accounted in books however not present in the GSTR-2B of the identical month | Books> GSTR-2B | ITC would not be availed in GSTR-3B unless that is available in GSTR-2B These ITC would be registered in the Unreconciled ITC/Deferred ITC A/c and tracked on a monthly basis and shall be claimed after that arises in GSTR-2B. The same is essential to secure the invoice-wise break up of these deferred ITC at any time towards the internal control for follow-up with Vendors and elaborating to Department. |
| Invoice NOT accounted in books while emerges in GSTR-2B that month | Books< GSTR-2B | ITC would not be claimed as the invoice is not available for the goods or services not obtained in that month. The same would be availed after it gets accounted in books. The same is essential to have the invoice wise break up of these ITC at any time for the internal control to book transactions and execute and elaborate to the department |
| Mismatch in ITC because of effects of the former months | The same would happen because of the fall on the effects of the former months of ITC. For instance when the ITC of Rs 100 of M/s ABC was emerges in GSTR-2B on January 22 but that was recorded in books on February 22. From February 22, ITC availed in GSTR-3B would exceed the ITC under GSTR-2B of February 2022 as ITC claim holds Invoice of former months towards which the appropriate reconciliation is needed to be maintained for every month. |
Recommended Suggestions for Vendors
- All the monthly vendors must have been demanded to furnish the GSTR-1 on or prior to the last date to claim the ITC on the invoice or debit note in a similar month.
- All the quarterly vendors must be pressed to upload the invoices or debit notes on the monthly grounds in IFF on or prior to the last date to claim the input tax credit on the invoice or debit note in the identical month.
- The monthly document wise suggestion of the Input tax credit under the books vis-à-vis ITC appearing in the GSTR-2B must be executed through the assistance of the effective software and for the case, any invoice or debit note does not appear in the GSTR-2B towards the identical month the input tax credit for the same would not be availed. Towards the case, it is to be suggested to park that in the ‘Deferred/Unclaimed ITC account’ for availing that in the month where it is to be reported in the GSTR-2B.
- It is mandated to have the indemnity clause for the agreement or POs for influencing any loss of input tax credit because of the non-filing of the GSTR-1 through the vendors or incorrect furnishing of the GSTR-1 because of which the invoice or debit does not mention in the GSTR-2B shall be indemnified through the vendor.
- A durable system must be secured to perform the background checks of the vendors for the means of compliance rating and for clearing the doubt an effective policy of retaining the GST part might be prepared.
- The ITC tracker must be maintained for which the recommended template gets held with
Note: Via clear essential from the government to permit ITC when that is available in the GSTR-2B it is essential to own a robust internal control system to secure and claim the ITC on the basis of time that is effective as cash for distinct business.
