Article explains What’s the restriction on Input Tax Credit under GST, On what Invoices/debit notes is the restriction on Input Tax Credit under GST imposed,  Calculation of restriction of Input Tax Credit under GST, Amount of ITC to be availed under GST, What would be the impact of the restriction on Input Tax Credit under GST and How to deal with this restriction on Input Tax Credit under GST.

The recent notification followed by a circular issued on 11 November 2019 states regarding restriction on availment of ITC. The ITC in respect of invoices or debit notes, the details of which have not been provided for by the supplier has been restricted.

This is not an automatic restriction by the portal and has to be exercised by the taxpayer himself on basis the reconciliation.

A. What’s the restriction on Input Tax Credit under GST?

The taxpayers claiming ITC on the basis of the invoices, are now required to ascertain if the corresponding details are uploaded by the supplier in their GSTR 1 consequently making it available as ITC in buyer’s GSTR 2A.

The amount of ITC to be availed by the taxpayers in respect of invoices whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible credit available in respect of invoices, the details of which have been uploaded by the suppliers.

1) On what Invoices/debit notes is the restriction on Input Tax Credit under GST imposed?

• If a registered taxable person has not uploaded the details of the invoices/debit notes whose details are to be mentioned as per Section 37(1) of GST Act are restricted for the availment of ITC.
• The taxpayer who paid on IGST on import, documents issued under Reverse Charge Mechanism etc. can avail full eligible ITC.
• The restriction is only applicable on those invoices/debit notes on which credit is availed after 9 October 2019.

 2) Calculation of restriction of Input Tax Credit under GST

Under this rule, the restriction is not imposed supplier wise. The credit available will be reconciled with the total eligible credit uploaded by all the suppliers combined.

The supplies on which ITC is not available under any provision will not be considered for calculating 20% of eligible credit available.

3) Amount of ITC to be availed under GST

The ITC for the invoices/debit note whose details have not been uploaded shall not exceed 20% of the eligible credit available for the invoice and debit notes whose details have been uploaded.

The following illustrations can explain eligible ITC:

Case- taxpayer ‘A’ receives 100 invoices involving ITC of Rs. 10 lakh.

B. What would be the impact of the restriction on Input Tax Credit under GST?

• A hit on liquidity:

Currently the taxpayers with annual turnover up to 1.5 crore are required to furnish the GSTR 1 on quarterly basis while others are required to submit GSTR 1 on monthly basis. Further, all the taxpayers are required to settle the net GST liability every month through GSTR 3B and this is the return where the restriction is imposed, which could mean lesser availability of ITC as compared to previous months and consequently output liability will have to be settled through challan remittances.

• Increased efforts in filing:

This restriction now makes the reconciliation of ITC as per GSTR 2A with the ITC available as per Invoices, an exercise to be carried at-least on a monthly basis.

C. How to deal with this restriction on Input Tax Credit under GST?

• Discuss with the supplier:Since it might have a big impact on the liquidity, where the supplier furnishes GSTR 1 on a quarterly basis especially in the cases where the credit period is not so high, as we would have already made the payment (incl. GST) to the supplier and we would again be required to make the payment for the deficient settlement of output owing to restriction on ITC. It would be a lot more convenient if the supplier submits GSTR 1 on a monthly basis or alternatively an arrangement can be made to increase the credit period.

• Keep your Reconciliation on the track: Reconciliation of credits available as per GSTR 2A with the eligible credits as per available invoices has to be done on a more regular & frequent basis, so that we have a pre-information and we could follow up with the supplier to do the timely compliance.
•  When can the balance ITC be claimed:
• Balance ITC can be claimed by the taxpayer in any succeeding months if the details of the invoices are uploaded by the supplier. Proportionate ITC can be claimed as and when the details are uploaded by the supplier.

Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.

GST ITC -02A Form is now active on GST portal: Declaration for transfer of ITC pursuant to registration under section 25 (2)

Registration under section 25 (2) covered where two separate registration can be obtained in single state due to different business vertical.

Now by filling GST ITC-02A form transfer of ITC from one vertical to other is possible. Let us discuss further in detail.

Rule 41A deals with Transfer of credit on obtaining separate registration for multiple places of business within a state or UT-

(1) A registered person who has obtained separate registration for multiple places of business in accordance with the provisions of Rule 11 and who intends to transfer, either wholly or partly, the untilized input tax credit lying in his electronic credit ledger to any or all of the newly registered places of business, shall furnish within 30 days from obtaining such separate registration, the details in Form GST ITC-02A electronically on the common portal either directly or through a facilitation center notified on  this behalf by the commissioner.

Provided that the input tax credit shall be transferred to the newly registered entities in the ratio of value of assets held by them at the time of registration.

Explanation– For the purposes of this sub rule,it is hereby clarified that the value of asset means the value of entire assets of the business whether or not input tax credit has been availed thereon.

(2) Newly registered person (Transferee) shall on the common portal, accept the details so furnish ed by the registered person ( Transferor) and upon such acceptance the untilized input tax credit specified in Form GST ITC-02A shall be credited in his electronic credit ledger.

Details to be furnished in GST ITC-02A are as follows:

Go to login: fill your credentials like Userid and password.

1) GSTIN of Transferee: Newly registered person to whom you want to transfer ITC. This will auto populate Transferee’s legal name and trade name.

2) Amount of matched ITC to be transferred: Amount available in electronics credit ledger of which amount to be transferred needs to mentioned according to head of tax Central tax, State/UT tax, Integrated Tax.

3) Save the above details and submit with DSC/ EVC.

Next Transferee needs to login to common portal and click on take action to accept credits transferred.

Example:

ABC Ltd has operations in Maharashtra with GSTIN:27AAxxxxxxxX1ZP (MH1)having credits in electronics ledger available is as follows CGST: Rs.10,000,SGST: Rs.10,000,IGST Rs.50,000. A new registration taken in the same state for different segment of business on 24 May 20 with GSTIN:27AAxxxxxxxX1ZQ (MH2) wanted to utilize credit available with MH1 to file GSTR-3B. MH1 should file GST-ITC-02A within 30 days of 24th May 2020 by 23 June 2020. MH2 should accept by clicking on Take Action. MH1 has a option to transfer all or partly based on value of asset by company on the date of registration. Hence asset with MH1 is Rs.10,00,000 and MH2 is Rs.10,00,000 on 24 May 2020 so ratio is 1:1. Available ITC will be divided equally between MH1 and MH2.

Key Note: Make sure PAN are same for both transferor and transferee.

Section 25 of Central Goods and Services Tax Act 2017 - Procedure for Registration

(1) Every person who is liable to be registered under section 22 or section 24 shall apply for registration in every such State or Union territory in which he is so liable within thirty days from the date on which he becomes liable to registration, in such manner and subject to such conditions as may be prescribed:

Provided that a casual taxable person or a non-resident taxable person shall apply for registration at least five days prior to the commencement of business.

Explanation.- Every person who makes a supply from the territorial waters of India shall obtain registration in the coastal State or Union territory where the nearest point of the appropriate baseline is located.

(2) A person seeking registration under this Act shall be granted a single registration in a State or Union territory:
Provided that a person having multiple business verticals in a State or Union territory may be granted a separate registration for each business vertical, subject to such conditions as may be prescribed.

(3) A person, though not liable to be registered under section 22 or section 24 may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered person, shall apply to such person

(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act.

(5) Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

(6) Every person shall have a Permanent Account Number issued under the Incometax Act, 1961 in order to be eligible for grant of registration:
Provided that a person required to deduct tax under section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number issued under the said Act in order to be eligible for grant of registration.

(7) Notwithstanding anything contained in sub-section (6), a non-resident taxable person may be granted registration under sub-section (1) on the basis of such other documents as may be prescribed.

(8) Where a person who is liable to be registered under this Act fails to obtain registration, the proper officer may, without prejudice to any action which may be taken under this Act or under any other law for the time being in force, proceed to register such person in such manner as may be prescribed.

(9) Notwithstanding anything contained in sub-section (1),-
any specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries; and
any other person or class of persons, as may be notified by the Commissioner, shall be granted a Unique Identity Number in such manner and for such purposes, including refund of taxes on the notified supplies of goods or services or both received by them, as may be prescribed.

(10) The registration or the Unique Identity Number shall be granted or rejected after due verification in such manner and within such period as may be prescribed.

(11) A certificate of registration shall be issued in such form and with effect from such date as may be prescribed.

(12) A registration or a Unique Identity Number shall be deemed to have been granted after the expiry of the period prescribed under sub-section (10), if no deficiency has been communicated to the applicant within that period.

Only one registration to be granted in a State or UT [Section 25(2)]

A person seeking registration under this Act shall be granted a single registration in a State or Union territory.

However, a person having multiple business verticals in a State or Union territory may be granted a separate registration for each business vertical, subject to such conditions as may be prescribed.

All the provisions of Act, as are applicable to a registered person, are applicable to the person getting registered voluntarily [Section 25(3)]

A person, though not liable to be registered under section 22 or section 24 may get himself registered voluntarily, and all provisions of this Act, as are applicable to a registered person, shall apply to such person.

Every registration to be treated as distinct person in case of a person having more than one registration [Section 25(4)]

A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of GST Act, 2017.

Establishment of same person in different states to be treated as establishment of distinct person [Section 25(5)]

Where a person who has obtained or is required to obtain registration in a State or Union territory in respect

of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.

PAN necessary for getting GST registration [Section 25(6)]

Every person shall have a Permanent Account Number issued under the Income-tax Act, 1961 in order to be

eligible for grant of registration:

However, a person required to deduct tax under section 51 may have, in lieu of a Permanent Account

Number, a Tax Deduction and Collection Account Number issued under the said Act in order to be eligible for grant of registration.