New rules notified on October 9 have restricted input tax credit utilisation by a buyer if the supplier has not uploaded correct details in GSTR1 return.

GST: If you are a GST registered business then the lowest rate offered by your supplier may not be the best option for you if your supplier has a history of not depositing the GST tax to the government on time. Under the GST law, a supplier is required to file GST return in GSTR-1 form before the 11th day of the next month, which will have the details of all outward supplies. This information is used by the buyers who will use that to avail input tax credit (ITC). According to tax experts, a GST registered supplier’s tax payment record is more important than the low rate offered by him as under the new rules any default in the payment of GST by the supplier to the government would result in withholding of the input tax credit benefits to the buyers of that supplier.

“The lowest quote rate quoted by a supplier may not be the best thing for those buyers who want to avail input tax credit under the GST,” said B Mallikarjuna Gupta, chief taxologist of Logo Infosoft, a company that provides accounting and GST solution applications and software.

It is important as the new rules notified in the second week of October mandate that the input tax credit claimed by a buyer in GSTR 3B form will be matched against the invoice details uploaded by the supplier in GSTR 1 form. These supply details reflect in GSTR 2 return.

If a supplier fails to deposit the GST to the government or defaults in filing the GSTR 1 form on time or if there is any other discrepancy then the input tax credit claimed by a buyer will be limited to the amount for which invoice matching is done and 20% of the amount where invoice matching could not be done. Although the buyer will be able to claim the input tax credit for the entire amount if a supplier has deposited the taxes and correctly uploaded the details in his GSTR 1 form for invoice matching.

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The settlement of input tax credit (ITC) for GST registered buyers is important as the withheld amount of input tax credit could be up to 10% of their working capital requirement in a month, particularly in the case of small and medium companies that face cash flow problems.

Tax experts recommend that people should check the tax payment history of their suppliers before finalising a purchase and supply contract.

“SMEs and business in the country need to go one step ahead and figure out whether their supplier is complying with the taxes or not. You will have to check whether he is filing GST returns properly or not,” Mallikarjuna Gupta told Financial Express Online.

Taxation experts say that a purchase decision basically entails consideration of three-four things – the price quoted by a supplier, quality of products, after-sale service and terms of payment among other things. They advise verification of the tax payment history of a supplier as one of the important parameters in the decision-making process. This can be done through GSTN portal.

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“Don’t go blindly by the L1 concept (the lowest price quoted by a supplier) which is normally done by the government departments and some other companies. You should also add checking the tax history of your supplier as one of the parameters to be checked before finalising a sale agreeement,” he told Financial Express Online.