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‘Input Tax Credit’ or ‘ITC’ means the Goods and Services Tax (GST) paid by a taxable person on any purchase of goods and/or services that are used or will be used for business.
ITC value can be reduced from the GST payable on the sales by the taxable person only after fulfilling some conditions. These conditions given under the GST law are more or less in line with the pre-GST regime, except for a few additional ones such as GSTR-2B. These rules are direct and maybe stringent in nature.
Latest Updates on ITC
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.
Check out the latest condition added to GST provisions to fulfil and claim ITC, by watching the video-
Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers to claim ITC. The conditions are summarised as follows-
The time limit to claim ITC against an invoice or debit note is earlier of two dates, given below:
For instance, XY Corp, a buyer with a purchase invoice dated 8th December 2021 (FY 2021-22), wants to claim GST paid on that purchase. As per the criteria laid down to find out the time limit, the two dates are as follows:
The earlier of the two is the date up till when the XY Corp can claim ITC of FY 2021-22. Therefore, the last date is 20th October 2022 and XY Corp can claim this ITC in any of the tax periods between April 2021 to September 2022.
Note: For debit notes, the above condition must be considered with respect to the debit note itself and not the original invoice that it is linked to.
**The last date is changed to 30th November of the year following the financial year, vide Budget 2022, but yet to be notified by the CBIC. Until then, the due date of September return shall be the last date.
The input tax credit is not available for claims in the following cases-
For further explanation of ineligible ITC claims, read our article on ‘Ineligible ITC under GST’.
Many conditions are there to claim ITC before the last date passes. An Indian enterprise must verify the ITC details before claiming it in Form GSTR-3B for a tax period. It involves regular reconciliation of GSTR-2B with books of accounts. Further, it requires frequent follow-ups with suppliers who have not reported tax invoices or debit notes.
All these require a robust and smart solution that requires the least manual effort!
Clear GST ensures that your GSTR-2B data is fetched without manual intervention. Our advanced reconciliation engine matches data between books and GSTR-2B to identify gaps, with the option to define custom matching logic and claim 100% ITC in GSTR-3B.
Clear GST also allows users to annually reconcile ITC across financial years for accurate preparation of GSTR-9 and GSTR-9C.
Clear Max ITC is India’s first end-to-end enterprise solution for maximising the claims of the input tax credit. Clear Max ITC platform has exclusive features to improve your input tax credit claims with value additions such as the following-
1. It hosts the fastest AI-based reconciliations to match invoices without any errors and help you identify 100% ITC.
2. Automated data reconciliations take place by direct data pulls from the GSTN and the ERP at regular intervals.
3. Automated vendor communication helps you to keep follow-up efforts at a bare minimum.
4. Smart payment decisions are synced to a business’s ERP based on automated vendor categorisation through an intelligent vendor scoring mechanism.
5. Advanced user access management helps you define access rights for each team and keeps data absolutely secure.
The platform firstly sets up a two-way connection between it and your ERP/accounting system. It schedules automatic reconciliations of the GST details at regular time intervals and also syncs vendor payment decisions.
Your team can fix the vendor payment terms to automatically hold the GST value or the entire invoice due if your vendor has not filed GST returns. It further syncs this decision with the ERP for all future payments. If any invoice is missing and identified so, communication is auto-sent to the concerned vendor via email, WhatsApp, etc.
With passing time, you will notice that the Clear Max ITC solution has helped you reduce the number of defaulting vendors, optimise input tax credit, and unblock your working capital. We’ve seen that the solution has helped many of our clients reduce their GST cash outflows and Increase profits by up to 7% just by way of ITC maximisation.
Explore the Clear Max ITC solution by requesting a demo: https://cleartax.in/s/max-itc
For further understanding, read more articles on ITC-