Government Set To Mend The GST Revenue Leakage; Caps Input Tax Credit At 20% To Avoid False Claims

Attention Taxpayers! Ask your vendors to upload invoices timely and accurately if you want to claim the full input tax credit of GST paid on procurements.

GST collections have hit the 19-month low of Rs 91,916 crore for September Month, causing havoc to Government targets. The revenues have dipped below the targeted revenues of Rs. 1.1 trillion a month for the second consecutive period.

This sudden declivity has prompted the Government to take stringent action to curb the possible revenue leakage.

How? - Taxpayers won’t be able to take more than 20% of the input tax credit amount if their vendors upload incorrect invoices or don’t upload invoices at all.

CBIC has issued a notification on 9th October 2019 detailing ‘Central Goods and Services Tax (Sixth Amendment) Rules, 2019’ , restricting the taxpayers to avail 100% input tax credit on the basis of invoices available with them.

As of now, this notification and the underlying decision are surrounded by several ambiguities. However, the industry, tax consultants and stakeholders have already raised concerns over the probable adverse effect of this decision on cash flows and working capital.

What are the new ITC rules?

In respect of invoices not uploaded or incorrectly uploaded by the vendors, the taxpayers will be able to claim a maximum of 20% of the total ITC available for those invoices which have been uploaded correctly.

In a simple sense, the taxpayers will be able to claim 120% of the ITC amount related to those invoices which have been uploaded accurately.

For the balance ITC, the taxpayers will have to wait until their vendors file the next periods’ returns and upload all the remaining invoices correctly.

What is the current matching process?

Currently, suppliers upload the invoices and file GSTR-1 on the monthly or quarterly basis as per their turnover limit. The information is auto-populated into Form GSTR-2A for the recipients.

However, the recipients are free to claim the entire input tax credit based on self-assessment and invoices available with them without verifying the details in Form GSTR-2A, subject to fulfilment of other conditions mentioned in Section 16 of CGST Act.

How will the matching process look like now?

Now, the recipients will have to carefully analyse the Form GSTR-2A before claiming the input tax credit in Form GSTR-3B. It will lead to an increment in the number of reconciliations for the taxpayers.

Let’s understand the changes with the help of an illustration:

Rameshwaran & Co purchased goods worth Rs 8,00,000 from Dwarka Prasad & Associates on which they paid GST worth Rs. 1,44,000.

However, Dwarka Prasad & Co. forgot to upload invoices worth Rs. 3,00,000 (GST - 54,000) in GSTR-1 filed for the month.

ITC in respect of invoices uploaded by the supplier = Rs. 90,000

ITC in respect of invoices not uploaded by the supplier = Rs. 54,000

In GSTR-3B to be filed for the month, Rameshwaran & Co. will be able to claim the input tax credit as -

Rs. 90,000 + 20% of Rs 90,000 = Rs 1,08,000

For the remaining amount of ITC (Rs 36,000), they’ll have to wait until Dwarka Prasad & Co uploads the balance invoices in next GSTR-1 return.

SahiGST, your GST Friend, is your friend in need

SahiGST offers advanced reconciliation feature through you can reconcile your purchase register vis-a-vis GSTR 2A before filing the GSTR 3B return. Also, you can directly communicate with your vendors from within the system by sending them customised reports showing the mismatches.

When they make the corrections into their GSTR 1 return, you can refresh your GSTR 2A and the mismatch report to check if all the differences have been sorted.

All in all, this decision is likely to push companies to strictly monitor their suppliers’ return filing process and status.

This reconciliation was likely to be carried out in the GST 2.0 return filing system. However, below-par revenue collections have pressurised the Govt to prepone the amendment.

Let’s see if the Government can fix the leakage through this decision. Only time will tell!

Start your free trial of SahiGST and experience the return filing and reconciliation process. Click here to sign up.

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