New Input Tax Credit Rules for GST

The Central Board of Indirect Taxes and Customs issued a notification on Wednesday amending the rules for claiming Input Tax Credit (ITC) under the Goods and Services Tax (GST). In a move that will likely cause cashflow problems for businesses, the government has capped the ITC that a registered person can claim, unless the entire eligible amount is backed by relevant invoices or debit notes.

“Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers [in Form GSTR-1],” read the notification. The new rules, called the Central Goods and Services Tax (Sixth Amendment) Rules, 2019, came into effect on October 9.

What does this mean for businesses?

This means that businesses will now have to chase down their vendors to regularly upload their invoices every month if they want to claim the entire tax amount they paid on inputs or purchases. Previously, entities could self-assess their ITC claims on the basis of the invoice copy, without any such restrictions provided the criteria outlined in Section 16 of the CGST Act were fulfilled.

Restriction of mismatched ITC by 20 per cent would mean undertaking monthly reconciliation of purchase, credit register with GSTR 2A, and hence will increase the monthly compliance burden.