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GST ITC Transition Provision

Updated on: Jul 6th, 2021

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6 min read

In this article, we will discuss GST ITC transition provision in detail.

Latest Update

1st February 2022
Budget 2022 updates-
1. ITC cannot be claimed if it is restricted in GSTR-2B available under Section 38.
2. Time limit to claim ITC on invoices or debit notes of a financial year is revised to earlier of two dates. Firstly, 30th November of the following year or secondly, the date of filing annual returns.
3. Section 38 is completely revamped as ‘Communication of details of inward supplies and input tax credit’ in line with the Form GSTR-2B. It lays down the manner, time, conditions and restrictions for ITC claims and has removed the two-way communication process in GST return filing on the suspended return in Form GSTR-2. It also states that taxpayers will be provided information of eligible and ineligible ITC for claims.
4. Section 41 is also revamped to remove the references to provisional ITC claims and prescribes self-assessed ITC claims with conditions.
5. Sections 42, 43 and 43A on provisional ITC claim process, matching and reversal are eliminated.

29th December 2021
CGST Rule 36(4) is amended to remove 5% additional ITC over and above ITC appearing in GSTR-2B. From 1st January 2022, businesses can avail ITC only if it is reported by the supplier in GSTR-1/ IFF and it appears in their GSTR-2B.

21st December 2021
From 1st January 2022, ITC claims will be allowed only if it appears in GSTR-2B. So, the taxpayers can no longer claim 5% provisional ITC under the CGST Rule 36(4) and ensure every ITC value claimed was reflected in GSTR-2B.

Need for GST ITC Transition Provision

Transition provisions are incorporated under GST to enable existing taxpayers to migrate to GST in a transparent and exact manner. One of the major concerns for businesses is the availability and eligibility for claiming input tax credit when the current indirect tax regime changes to GST.

To guard these transactions and events, the GST Law Model has certain transition provisions w.r.t. the closing balance of input tax credit with existing taxpayers under the existing indirect tax regime. We shall discuss few such provisions in this article.

Closing Balance of CENVAT Credit

GST provides that a taxable person shall be entitled to take in their electronic credit ledger the amount of CENVAT Credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished under the current tax regime.

The credit of the amount of Value Added Tax and Entry Tax carried forward in the return relating to the period ending with the day immediately preceding the appointed day, will be applicable for returns filed not more than 90 days before the said date, furnished under the current tax regime. CENVAT Credit can be related to inputs, input services or capital goods. Balance shown in the return furnished under current tax regime will be opening balance in electronic tax ledger under GST to be known as CGST (Central goods and Services Tax) or SGST (State goods and Services Tax).

Conditions for availing the Input Tax Credit

It is pertinent to note that the credit of input tax will be available under GST only on fulfilment of the following conditions:

  1. The CENVAT Credit must qualify as an amount admissible as input tax credit under both the tax regimes
  2. The CENVAT Credit must have been reflected as input credit carried forward in the return filed for the last period under existing law

The amount carried forward in the return filed under current indirect tax regime will be available as opening balance under electronic credit ledger. The balance of CENVAT Credit shown in the books of accounts has no relevance here.

CENVAT Credit on Capital Goods, not carried forward in return

GST ITC Transition Provision

As for capital goods, under the CENVAT Credit Rules, 2004, it is stated that only 50% credit can be availed during the first year. The remaining 50% of credit can be availed in any of the subsequent financial years. This section enables a registered taxable person to avail the balance un-availed CENVAT Credit in his electronic credit ledger.  

A registered taxable person is not allowed to avail credit under this section unless CENVAT Credit was admissible to him under the earlier law, and under GST as well. Hence, under GST, a registered taxable person may avail the un-availed credit of CENVAT on capital goods not carried forward in the return filed for the period immediately preceding the appointed date.  

Conclusion

For successful implementation of GST throughout India, smooth transition provisions are a prerequisite. This will ensure that the new tax regime scores high among the taxpayers and does not affect the ease of doing business. To know more about GST, do read our other articles on the subject.

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Quick Summary

The article discusses the latest provisions under GST regarding Input Tax Credit (ITC) transition, including updates as of February 2022 and amendments to various sections. It emphasizes the importance of transition provisions for taxpayers migrating to GST and highlights the process for claiming CENVAT credit and conditions for availing input tax credit.

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