The new Rule 36(4) has created waves across all assessees. For the first time, a serious examination of the GSTR 2A is being done by all assessee on a real time basis (while earleir they were doing so on quaterly / yearly rest). However, while the assessee are feeling aggrieved with this big exercise which is required to be done on a month basis, they are also feeling helpless in respect of ITC relating to dealers who are filing their GSTR 1 on quaterly basis. The non reflection of the Input Tax Credit (“ITC”) has created ripplies all across.
ITC limit available Act wise
However, the trouble seems not to end there. While it is being understood in common parlance that the ITC can be taken maximum to the extent of 20% in excess of what is appearing in one’s GSTR 2A, it is also to be understood that this limit applies Act wise, meaning thereby that available ITC under each of the Act (CGST, SGST, IGST) has to be seen individually. Lets understand this by way of this example:
Mr. A received the folloing ITC reflected in his GSTR 2A for November 2019: CGST – Rs. 100, SGST – Rs. 100, IGST – Rs. 150. While his ITC register shows the ITC as follows: CGST – Rs. 100, SGST – Rs. 100, IGST – Rs. 200. If we consider the limit of 20% on a holistic level, his available ITC shall be Rs. 350 + 20% = Rs. 420. He shall be able to take his entire ITC of Rs. 400 in his return. However, when this limit is applied individually, his ITC available shall be as follows:
a. CGST : As per ITC registerRs. 100, GSTR 2A: Rs. 100, Available: Rs. 100 (non benefit of 20% limit as entire ITC is available)
b. SGST : As per ITC registerRs. 100, GSTR 2A: Rs. 100, Available: Rs. 100 (non benefit of 20% limit as entire ITC is available)
c. IGST : As per ITC register Rs. 200, GSTR 2A: Rs. 150, Available: Rs. 180 (GSTR 2A (150) + 20% limit )
Total available ITC = Rs. 380. Rs. 20 shall be taken in subsequent month(s) upon reflection in GSTR 2A.
The reason is evident since the Rule 36(4) has been brought seperately under CGST, SGST and IGST (borrowing it from CGST act). Thus, each Act has its own application of ITC and no cross limit use has been provided in the Rule.
The legislature need to look into this as this may not effectively provide the relief as envisaged by the law makers. For the assessee, it is one nation one tax. The application of Rule without cross Act benefit has again increased workings for the assessee. This is in additon to the trouble that excess limit as per ITC in GSTR 2A of one state cannont be used in another (considering CGST Act is a single Act for the assessee). There are further more pertinent questions and complications in working of the Rule and government need to look into some relaxations as both the non availability of cross credits and ITC of quaterly dealers not being shown up in GSTR 2A for two months is leading to a lot of blockage of working capital.
Blockage of cash now deposited
Government also need to consider the fact that even though the application of Rule may bring respite in collection for initial two months, the same may start showing similar pattern of dip from January 2020 and onwards as the entire ITC which remained blocked on account of later filers and quaterly filers shall hit GSTR 2A of the taxpayers in January 2020. Taxpayers with low margin of operation may take longer to abosrb the ITC paid in Cash. also, any cash deposited now and later ITC availability is shown in GSTR 2A does not entitle the taxpayer for refund of cash so deposited now. This is also to be examined from the perspective of traders.
Another manner to achieve this could have been to require the taxpayers who have huge gaps on quaterly rest between their ITC claimed and GSTR 2A to provide their ITC register and let government match their credit with that shown in portal to catch the real defaulters. This overall check may not bring the required respite from the wrongdoers in one go.
Sponsor:
For monthly working and proper matching of ITC, use V-Match software. VMatch not only computes Rule 36(4) limit, it also maintains the data for future reference.
[pdf-embedder url=”https://gstindiaguide.com/wp-content/uploads/2019/11/V-Match-ppt.pdf”]
Contact us at:
ACCLEDGE INFOSOLUTIONS PRIVATE LIMITED
SD 433, Pitampura,
Delhi 110034
+91 8920 934 943
+91 966 7444 093
[email protected]
www.accledge.com/vmatch
