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GST ITC Transition Provision

Updated on:  

08 min read

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

Latest Update

28th May 2021
CGST Rule 36(4) to cumulatively apply for April, May and June 2021 while filing GSTR-3B of June 2021.

1st May 2021
The CGST Rule 36(4) restricting provisional ITC claims to 5% of GSTR-2B in GSTR-3B is relaxed for April 2021. The taxpayer can apply this rule cumulatively for both April and May while GSTR-3B for May 2021.

1st February 2021
Budget 2021 update: Section 16 amended to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B. Henceforth, the input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

22nd December 2020
Following are the changes in Rule 36(4) from 1st January 2021:
1. The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).
2. The recipients can claim provisional input tax credit in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month.

Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period as per a new rule 86B.

3rd April 2020
The CBIC has notified that taxpayers can claim input tax credit in the GSTR-3B return from February 2020 to August 2020, without applying the rule of capping provisional ITC claims at 10% of the eligible ITC as per GSTR-2A.

While filing the GSTR-3B of September 2020, the taxpayers must cumulatively adjust ITC as per the above rule from February 2020. 

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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