The government has introduced limitations on the availability of input tax credit (ITC) by GST assesses, if the details have not been provided by the supplier. This is aimed to curb the peril of fake invoices and improve cash flow, while this could lead to an increased workload for assesses.
As per the existing system, assesses are required to file two return forms – GSTR-1 which is for outward sales with tax liability and GSTR-3B which consists of summary returns with final tax payment. However, as both these return forms are auto-linked, this could result in showing higher tax liability, claiming the higher input tax credit and paying less tax in cash.
Simply put, the service recipient used to claim the credit without any restriction, irrespective of the credit showing in GSTR-2A which is auto-generated return for purchases. They were not subjected to having the invoice copy and fulfilling other conditions laid down under the law.
It was the assumption that one of the reasons for availing higher input tax credit on the basis of fake invoices was the mismatch between GSTR-1 and GSTR-3B. This also led to a negative impact on the government’s revenue.
Based on the new notification, the input tax credit claimed in GSTR-3B will not exceed 20% of the total eligible credit with respect to vendors who have not uploaded invoice details at the GST portal. However, experts are still unclear whether 20% means per supply or of all supplies taken together.
Furthermore, going forward, it will be mandatory for the buyers to match the claimed ITC with the details uploaded by the vendors. This also means that the businesses are required to monitor whether the suppliers are uploading their returns on a regular basis.