The change has led to another set of compliance on a monthly basis i.e. check GSTR 2A if the credit claimed doesn’t exceed GSTR 2A by 10% and also determine the credit which are ‘eligible’ out of the GSTR 2A before applying this 10% rule.
The 38th meeting of the GST Council has made further changes to the way you can claim input tax credit. According to the Council in case where there is a mismatch or details have not been uploaded by the suppliers, input tax claim will not exceed 10 per cent of the eligible credit available in respect of invoices or debit notes uploaded by the suppliers.
In October this year, the Government had come up with this rule, but had fixed the rate at 20%. With the lowering of the rate, it is expected to have a greater impact on cash flow of firms.
“Reduction in the limit from 20% to 10% for unreconciled credit is likely to impact the working capital for many dealers. This could pose another challenge in the already turbulent times. “Also, the reconciliation effort has already increased since the provision was implemented in October,” said Harpreet Singh, Partner, KPMG India.
For example, say in the month of November, the input tax credit available (as per books) is Rs 1,500. Out of this, certain vendors wherein input tax credit involved is say Rs 500 have not filed their GSTR-1. Now, due to amendment, the buyer can avail ITC only to the extent of Rs 1,100 (i.e. 110% of R 1,000) and not 1,500.
“The 10% restriction will put further pressure on working capital requirement arising out of the unmatched credits. The move appears to be aimed at enforcing a better discipline around tax payment, reporting and credit ecosystem,” says Priyajit Ghosh, Partner, PwC India.
The change has led to another set of compliance on a monthly basis i.e. check GSTR 2A if the credit claimed doesn’t exceed GSTR 2A by 10% and also determine the credit which are ‘eligible’ out of the GSTR 2A before applying this 10% rule. There has been a clamour, especially by small businesses, to reduce monthly compliances, but the Council’s move will have a bigger impact.
“The reduction of provisional credit from 20% to 10% will complicate things for businesses. Unless they put a strict control around vendor invoicing and follow up, they will be hit with serious cash flow issues. Any further capping could have been considered later with the new return filing process,” says Archit Gupta, Founder and CEO – ClearTax.
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