Earlier this month, the government had notified new rules restricting the refund of input tax credit (ITC) to 20% of the total claimed amount. Many GST registered payers and businesses will begin filing their returns from next week under the new rules governing the refund of the input tax credit. On October 9, the GST Council notified of new rules under section 43 of the GST law that restricts the refund amount to 20% of the total eligible credit if the vendors have not uploaded correct details in the Form GSTR-1 at the GST portal.
However, due to the lack of clarity on the applicability of this rule, businesses are expected to face challenges this month onwards. The decision was aimed to curb the use of fake GST invoices to claim the input tax credit under the GST and improve cash flow. But, due to the lack of clarity over certain provisions of the new rules – whether 20% means per supply or of all supplies taken together – has led to uncertainty.
The GST returns of October 2019, which will be filed on or before the 20th of November is going to the first occasion when GST payers will file their returns after the implementation of the newly introduced restrictions of 20 percent. The lack of clarity over the new rules has created confusion in the minds of taxpayers.
One of the issues among many taxpayers is how the government will calculate the 20% amount for refunding the input tax credit. The ITC mechanism under GST means the government will refund or adjust taxes paid during earlier stages of production of goods which helps to prevent the cascading effect of taxes.
However, as the entire process of GST returns filing and invoice matching is done online through the GSTN portal, the cutoff date or time for matching needs to be clarified.