Guidance Note-Claim of ITC as per GSTR 2B

[NikhilMohan Jhanwar]

Guidance Note-Claim of ITC as per GSTR 2B

Since implementation of GST, the claim of input tax credit has witnessed multiple amendments with Government’s intention to allow less and recover more and restricting the claim only if the invoices/debit notes are uploaded by the suppliers in GSTR-1. Through this write-up, we intend to cover the intricacies of claim of ITC from practical and accounting perspective working a ready reference for your business.

A. Legal Position upto 31.12.2021

A legal history with respect to claim of Input tax credit on transactions which are required to be reported in GSTR-1 is summarized below:

Period	Legal Position
01.07.2017 to 08.10.2019	No express provision to claim ITC only if the same is appearing in GSTR-2A/2B
09.10.2019 to 31.12.2019	Rule 36(4) inserted to restrict claim of ITC upto 120% of eligible ITC for which documents uploaded by Supplier in GSTR-1
01.01.2020 to 31.12.2020	The restriction under Rule 36(4) revised from 120% to 110%
01.01.2021 to 31.12.2021	The restriction under Rule 36(4) revised from 110% to 105%

B. Legal Position w.e.f. 1^st January 2022

Now, new clause “(aa)” to Section 16(2) has been inserted vide Section 109 of the Finance Act, 2021 which was made applicable w.e.f. 01.01.2022   vide Notification No. 39/2021- Central Tax dated 21.12.2021. Further, consequent changes have been made in Rule 36(4) of CGST Rules, 2017 to align it with new clause (aa) of Section 16(2) of CGST Act, 2017.

Accordingly, w.e.f. 01.01.2022, a registered person shall be able to avail ITC in respect  of only those invoices or debit notes the details of which have been furnished by the supplier in their  GSTR-1/IFF and appearing in GSTR-2B.

C. Key Points

1. Earlier Rule 36(4) mandated claimed of ITC based on gross reconciliation (not supplier-wise) but now document-wise reconciliation is required to be done

2. In case of quarterly vendors filing GSTR-1 on a quarterly basis, ITC will be available only when the same is furnished by the vendors in GSTR-1 or in IFF on a monthly basis.

3. As per strict interpretation of the above provisions, since registered suppliers where recipient is paying tax under RCM i.e. legal services, transportation services etc. are required to upload the details of Invoices/Debit Notes in GSTR-1 as per Section 37(1) of CGST Act, 2017, the restriction of claim of ITC will apply even in case of inward supplies liable to RCM received from registered suppliers.

4. The restriction of ITC does not apply to import of goods from outside India including SEZ, import of services, ISD credit, RCM credit on supplies from unregistered persons

5. The matching of ITC should be done as per GSTR-2B and not GSTR-2A in terms of Rule 36(4).

6. Such amendment made effective w.e.f. 01.01.2022 shall apply to all the ITC taken on or after 01.01.2022, meaning thereby that such restriction would apply even if credit is taken on or after 01.01.2022 on invoices raised before 01.01.2022.

D. Key steps for reconciliation

Step 1:  Booking of Input tax credit in books as per Purchase Register

Purchase/Expense Account     Dr.

IGST ITC Receivable                 Dr.

                     Vendor Account                  Cr.

Further, one ledger Unreconciled/Deferred ITC A/c needs to be created to park ITC appearing in books but not claimed in GSTR-3B as it was not appearing in GSTR-2B

Step 2. Monthly document wise Reconciliation of ITC as per GST-2B after considering debit note and credit notes also

Step 3. Scenario analysis and taking action

Scenario	Criteria	Action in GST-3B and books
Invoice accounted for in books and also appearing in  GSTR-2B of January 21	MATCH	ITC can be claimed subject to eligibility in GSTR-3B
Invoice accounted for in books but NOT appearing in  GSTR-2B of same month	Books> GSTR-2B	ITC cannot be claimed in GSTR-3B unless the same appears in GSTR-2B Such ITC will be parked in Unreconciled ITC/Deferred ITC A/c and tracked on a monthly basis and will be claimed once the same appears in GSTR-2B. It is important to have invoice-wise break-up of such Deferred ITC at any point of time for internal control for follow-up with Vendors and explaining to Department
Invoice NOT accounted for in books but  appearing in  GSTR-2B that month	Books< GSTR-2B	ITC Cannot be claimed as Invoice not available or goods or service not received in that month. It can be claimed once accounted for in books It is important to have invoice-wise break-up of such ITC at any point of time for internal control for booking transactions and taking action and explaining to Department
Mismatch in ITC due to previous months effects		This will happen due to spill-over effects of previous months ITC. For e.g.  if ITC of ₹ 100 of M/s ABC was appearing in GSTR-2B of January 22 but the same was recorded in books in February 22. Now in February 22, ITC claimed in GSTR-3B will be more than ITC as per GSTR-2B of February 2022 as ITC claim contains Invoice of previous months for which suitable reconciliation is required to be maintained for each month

E. Suggested Action Points

1. All monthly vendors should be insisted to file GSTR-1 on or before due date to avail ITC on Invoice/Debit Note in same month

2. All quarterly vendors should be insisted to upload Invoices/Debit Notes on a monthly basis in IFF on or before due date to avail ITC on Invoice/Debit Note in same month

3. Monthly document-wise reconciliation of ITC as per books vis-à-vis ITC appearing in GSTR-2B should be done with the help of suitable software and in case any Invoice/Debit Note is not appearing in the GSTR-2B for the same month, the ITC of the same cannot be claimed. In such case, it would be advisable to park the same in a ‘Deferred/Unclaimed ITC account’ to claim the same in a month in which it is reported in GSTR-2B’.

4. It is important to have an indemnity clause in agreement/POs to the effect that any loss of ITC due to non-filing of GSTR-1 by the vendors or wrong filing of GSTR-1 due to which invoice/debit note is not appearing in GSTR-2B will be indemnified by the vendor

5. Robust system should be in place to have background checks of Vendors in terms of compliance rating and in case of doubt, suitable policy of retaining GST portion may be devised

6. The ITC Tracker should be maintained for which suggested Template is enclosed herewith

Before parting……

With clear mandate from Government to allow ITC only if the same appears in GSTR-2B, it is imperative to have robust internal control system to save and claim ITC on a timely basis which is as good as cash for any business.

(CA Nikhil M. Jhanwar)

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