CBIC Issues Clarification on Restriction in Availment of Input tax credit

The Central Board of Indirect Taxes and Customs(CBIC) in its Circular dated 11th November 2019, has clarified Restriction in availing input tax credit in terms of sub-rule (4) of rule 36 of CGST Rules, 2017.

Rule 36 of the CGST Rules lays down the conditions for claiming of Input Tax Credit (ITC), in which new sub-rule (4) provides that ITC in respect of invoices / debit notes not uploaded by suppliers cannot exceed 20% of the eligible ITC pertaining to invoices / debit notes uploaded by the suppliers.

However, the notification issued by the CBIC on October 9 caused a lot of confusion over the method of calculating this 20% amount, the cut-off date and also whether it was to be calculated supplier-wise or on a consolidated basis. CBIC has issued clarifications on the subject to ensure uniformity in the implementation of the provisions.

Therefore CBIC has issued this present circular clarifying the following issues:

  • The CBIC clarified that the restrictions under 36 (4) will be applicable only on invoices/debit notes, on which ITC is availed after October 9 this year.
  • The CBIC clarified that, The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC.
  • The CBIC also clarified that, The amount of input tax credit in respect of the invoices/debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under subsection (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period.
  • 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 only uploaded the correct invoices in respect of supplies of Rs 6 lakh only in the GSTR-1 forms uploaded by them, then the buyer can avail ITC of Rs 6 lakh plus 20% of the eligible amount that is Rs 1.2 lakh. Therefore the buyer could claim a total ITC of Rs 7.2 lakh in the month.
  • It also clarified that the total amount of ITC, even after the addition of 20% input tax credit over and above the eligible amount where invoice matching has been done, cannot exceed the total amount of input tax credit that can be claimed.
  • CBIC Further clarifies that the balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers.
  • The circular requests for suitable trade notices to be issued to publicize the contents of this Circular.

Click here to read the Notification