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New proposal to claim GST input credit may have significant impact on cash flow
October, 11th 2019

In a major overhaul of how input credit is availed by businesses, the Government has proposed in case where there is a mismatch or details have not been uploaded by the suppliers, input tax claim will not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This is expected to have a significant impact on cash flow of firms.

“As per the amended CGST Rules (likely to become effective in days to come), input tax credit to be availed by a registered person, the details of which have not been uploaded by the suppliers, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers. This means going forward, it will be mandatory for the buyers to match the ITC claimed with the details uploaded by the vendors,” says Pritam Mahure, chartered accountant .

For example, say in the month of April, the input tax credit available (as per books) is Rs 1,500. Out of this, certain vendors wherein input tax credit involved is say Rs 500 have not filed their GSTR-1. Now, due to amendment, the buyer can avail ITC only to the extent of Rs 1,200 (i.e. 120% of R 1,000) and not 1,500.

“This restriction will actually mean that the Companies need to monitor whether the suppliers are uploading their returns on regular basis. Most Companies are likely to feel the pinch of the amendment (once it becomes effective),” says Mahure.

Given there is no matching of invoices taking place, taxpayers have been filing GSTR 3B. Subsequently, GSTR 2A as a return was automatically generated for a taxpayer from his seller's GSTR-1. Any difference could be settled at a later date and there was no impact on what a taxpayer could claim as ITC in case there was mismatch. That is likely to change.

The amendment has introduced another set of compliance on a monthly basis i.e. check GSTR 2A if the credit claimed doesn’t exceed GSTR 2A by 20% and also determine the credit which are ‘eligible’ out of the GSTR 2A before applying this 20% rule,” says PwC, Partner, Priyajit Ghosh.

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