GST Council Passes Further Restrictions On Granting ITC Market Cash Flow

Restrictions On Granting ITC Market Cash Flow

The decision of the panel has caused fear for various industries as this will further block the cash flow of businesses amid their existing struggle with finances in times of economic slowdown in India.

The proposed clause goes on like if taxpayer has paid Rs. 1,000 as taxes to the supplier in lieu of the inputs purchased the amount will then be mentioned under ITC claimed by the taxpayer in his form GSTR 3B. Now it is the responsibility of the taxpayer to note that the concerned supplier is also uploading the invoices of relevant transactions in his supply returns i.e. GSTR 2A form. In case if the invoices worth 20% of the Input Tax Credit claimed is not uploaded by the supplier, then the taxpayer becomes eligible for only Rs. 800 (1000 – 200 (20% of 1000).

Adding on to this, the ITC worth Rs. 80 more (10% of Rs. 800) can be claimed by the taxpayer once the 38th GST Council decision is formally noted. Earlier the ITC Claimed could be Rs. 160 (20% of Rs. 800).

As per the provisions earlier, the complete amount of ITC claimed was released by tax authorities in the accounts of the taxpayers. In October the amended clause restricted the flow of ITC to only 20% of the ITC claimed and now the eligible ITC would be only 10% of the total credit claimed by the taxpayer.

Experts revelations on the newly proposed Clause

  • The clause will be a challenge for businesses in India said Archit Gupta (CEO, Fintech Service Platform, Cleartax). He further added that the provisions regarding the reduction in ITC could be considered later. In the recent norms there is a policy of invoice matching without which ITC cannot be claimed. These returns would come into effect from April 1.
  • Rule 36 (4) under the CGST Act, enabling such restrictions on ITC, is challenged at the Delhi high court. “Businesses are waiting for the elimination of such restrictions which are not in harmony with key GST principles that allow effortless credits across the value chain,” said M.S Mani (partner at consultants Deloitte India).
  • Provisions regarding the restrictions on ITC owing to the faults of the vendors will go through constitutional proceedings. Further the percentage either 10% or 20% on the ITC claimed has no logic said Abhishek Rastogi (partner at Khaitan & Co).
  • Multinational Firms have multinational companies have completely forgone the 20 per cent or 10 per cent credit, on account of the hassle of month-on-month reconciling credit said Harpreet Singh, (partner at consultancy KPMG).
  • Government is adamant in restricting the grant of ITC due to the falling tax collection and as a measure to bring in foreground the ITC fraudulent said Abhishek Jain, (tax partner at consultancy EY). Businesses have to ensure timely reconciliation, taking follow-up from the suppliers and keeping updated records of the said compliances, he further added. If the mechanism lacks accuracy this may lead to cash flow issues for the particular business.