Calculation of Input tax credit as per new GST Rule 36(4)

Calculation of Input tax credit as per new GST Rule 36(4)

Rule 36(4) is given below for reference:

36(4) 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 under sub-section (1) of section 37.

In Short it means that those credits cannot be taken which are in excess of 20% of credit as appearing in GSTR-2A.

You May Also Refer : 20% ITC restrictions : Understanding Circular No. 123/2019 dated 11.11.2019

• For example, if a buyer is entitled to avail input tax credit of Rs 10 lakh on inward supplies (purchases) in a month but if his suppliers have uploaded the correct invoices in respect of supplies only to the extent of Rs 6 lakhs in the GSTR1 forms uploaded by them, then the buyer can avail ITC of Rs 6 lakh plus 20% of the eligible amount ( 20% of Rs. 6 lakhs) that is Rs 1.2 lakh.

• Therefore the buyer could claim a maximum ITC of Rs 7.2 lakh in the month. The balance can be claimed only after matching.

Credits which are outside purview of this rule are:

1. ITC in respect of the IGST paid on imports;

2. ITC where GST has been paid under the Reverse Charge Mechanism (RCM)

3. ITC in case of Input Service Distributors (ISD).

4. Re-availment of credit under rule 37

5. Re-availment of credit after year under calculation of Rule 42

6. ITC claimed through ITC-01, ITC-02, TRAN-1, TRAN-2 and TRAN-3

You May Also Refer : Consequences if 20% ITC RULE 36 (4) is not followed

Various Problems Faced by Industry :

1. Quarterly Filing of GSTR-1 : Government has not clarified how the input can be taken where the GSTR-1 is being filing Quarterly. This will lead to problem of cash crunch as the person will pay tax in one month and will carry forward excess ITC in other.

2. Ineligible credit reflected in GSTR-2A : It is not hundred percent guaranteed that all the credits reflecting in GSTR-2A are eligible. It may contain ineligible and even incorrect credits which can be reconciled only after deep scruitney of books.

3. Goods in transit: If goods are in transit then condition of sec 16 doesn’t fulfill, hence its ITC cannot be claimed even if they are appearing in 2A.

4. Monthly reconciliation not a easy job : It is not an easy job to reconcile GSTR-2A and Books on monthly basis in the very short time frame that is provided to the tax payer. Also GSTR-2A is a dynamic form. It changes when invoices are corrected , added or omitted.  This makes the reconciliation process even more difficult.

You May Also Refer : Changes in GST ITC Availment Conditions

Should be calculate the Credit restriction Tax head wise or consolidated basis

Also though no clarification has been received on this issue, but it would be more prudent to calculate the Credit restriction Tax head wise.

A reasoning for same is that since this rule has been bought separately in the 3 Acts,  hence it can be understood that the credit restriction is calculated separately.

Whether the said restriction is to be calculated supplier wise or on consolidated basis

The restriction imposed is not supplier wise but on consolidated basis.

Calculation of Input tax credit as per new GST Rule 36(4)

How to Calculated availability of ITC as per new GST Rule 36(4)

Eligible ITC can be calculated as follows : 120% of ITC as per GSTR-2A or ITC as per Books whichever is lower

So Ineligible ITC will be follows : (ITC as per Books-120% of ITC as per GSTR-2A) or Zero whichever is Higher.

You May Also Refer : Clarification On Restriction in availment of ITC w.r.t CGST Rule 36(4) issued by CBIC

Please use the below mentioned example to understand the above mentioned formula

Particulars ITC as Per Books ITC as per GSTR-2A Eligible ITC Ineligible ITC
Case -1 100 60 72 28
Case – 2 100 90 100 0

Disclaimer : The Above Formula based on understanding of Author and is subject to reconciliation of GSTR-2A and Books.

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