How to claim ITC under the New GST return filing system ?

Input tax credit is the tax paid on the purchase of goods or services which can be set off against the tax liability on the sales.

The new GST return filing system is expected to make the process of filing regular returns and tracking of ITC smooth and easier. In this article, we analyse in detailed the process for claiming Input Tax Credit (ITC) on purchases. It includes both goods and services.

Specifically, it will address the input tax credit claims under the new GST returns system, which was earlier planned to be implemented from April 2020 onwards. However, the new GST return system is put on hold.

Latest Updates on New GST Return System

14th March 2020*
The new GST return system will be implemented from October 2020.
The present return filing system (GSTR-1, 2A & 3B) will continue until September 2020.
*Subject to CBIC notification

Comparison between present and new GST returns

Under the system of GSTR-1 and GSTR-3B, the tax credit is claimed by the recipient based on the sales invoices uploaded by the seller/supplier. The provisional credit (without invoice upload) is allowed only to the extent of 5% of ITC in GSTR-2B (earlier GSTR-2A). It is different from the mechanism laid under the pre-GST regime, where credit was allowed based on the purchase invoices on the buyer’s record.

However, with the new GST return system, the whole system of ITC claims will be monitored via e-invoicing, ANX-1 and ANX-2. Earlier, the issue was that seller raised tax invoices on which the purchaser availed credit without knowing that the seller has not paid taxes to the Government. It resulted in the government losing money and hence, it was necessary to introduce a mechanism where credits are available to the purchaser only when the seller pays tax to the Government.

ITC Claim under the present GST return filing system

Currently, credits under GST are required to be claimed by following this procedure:

• A seller uploads the invoice-wise sales details every month/quarter by the 11th of the subsequent month (or 13th of the month subsequent to the quarter). It depends upon the GSTR-1 filing frequency of the taxpayer on the GST portal.
• Invoices uploaded by the seller in GSTR-1 can be viewed by the purchaser in his GSTR-2B form.
• The purchaser can claim an input tax credit in the GSTR-3B form based on the tax invoices provided by the seller, as found in his GSTR-2B. The claims can be up to 105% of the eligible ITC in GSTR-2B for a tax period. Hence, a taxpayer can claim 5% more ITC towards the invoices/debit notes not uploaded in GSTR-2B by corresponding suppliers. It must be reconciled and adjusted in the subsequent tax periods when the invoices are actually uploaded by the suppliers.

Note: Ultimately, if the provisional input tax credit claimed on purchases in GSTR-3B is more than the input reflecting in GSTR 2A, then the department might issue a notice seeking an explanation for the same. The credit can be denied by the department for the invoices for which tax is not paid by the seller.

ITC Claim under the new GST return filing system

The new GST returns functions based on a single return RET-1 or RET-2 or RET-3, supported by two annexures -ANX-1 and ANX-2. Out of these forms, ANX-2 holds importance due to the fact that taxpayer can in this annexure, either accept, reject or mark invoices as pending, for ITC claims. The following table gives a picture of the new GST return structure:

Annual Turnover*	Return Type
More than Rs.5 crore	Regular Monthly Return
Less than Rs.5 crore	a) Regular Quarterly Return b) GSTR Sugam Return c) GSTR Sahaj Return

*Assessee with a turnover of below Rs.5 crores will have an option to file quarterly returns and one of the returns mentioned above. 

• The supplier will have a facility of continuously uploading invoices anytime during the month which will be visible to the recipient at any point in time.
• Invoices uploaded by the corresponding suppliers will be auto-populated in an annexure for inward supplies of the recipient on a real-time basis, and the recipient will be able to view these invoices in the “viewing facility” enabled on the portal
• The recipient will be able to take specific actions against the invoices available in the “viewing facility” after 10th of the next month:
  • Accept – If he wants to avail the credit
  • Reject – If he does not want to avail the credit or the transaction does not belong to him
  • Pending – If he wants to take the credit in the subsequent period
• The credit with respect to inward supplies accepted by the recipient shall be posted in the relevant field of the input tax credit table of the return to be filed by the recipient.
• Once the recipient has accepted the invoices, such invoices will be considered locked and no changes can be effected in respect of such invoices. In cases where the recipient has a large number of invoices, taking action against each of the invoice could be difficult and hence all the invoices will be treated as accepted and locked except those invoices which are marked as pending/rejected.

There shall not be any automatic reversal of input tax credit at the recipient’s end where the invoice is uploaded but tax has not been paid by the supplier.

In case of supplier failed to pay tax on the supply, recovery shall be first made from the supplier and in some exceptional circumstances like a missing taxpayer, closure of business by the supplier or supplier not having adequate assets or in cases of input claimed by the recipient in an illegal way, etc.

Invoices not uploaded by the supplier

In the initial phase of six months of implementing the new GST return system, the recipient will have an option to avail ITC on a self-declaration basis even on the invoices not uploaded by the supplier by the 10th of the next month by using the facility of availing ITC on missing invoices. The input claimed on the missing invoices by the recipient shall be filed by the seller within the next two tax periods from the input claimed by the recipient.

If the same is not filed by the supplier, the input claimed by the recipient shall be reversed with interest and penalty. For example, Mr A purchased goods from Ms B in the month of April 2018. But, Ms B failed to report the same in the April 2018 returns. A has an option to claim the credit in April 2018 returns and B has to report the same by June 2018 returns. If B missed reporting the same by June 2018 then the ITC claimed by A shall be reversed in July 2018 returns with interest and penalty.

Relevance of Section 43A in new GST return system

A new section 43A was introduced in 2018 via an amendment to the CGST Act, where a mechanism for availing of the input tax credit by the recipient even if the supplier does not provide adequate details in his returns was introduced. Under this section, rule 36(4) was notified where the recipient can avail ITC even if the supplier does not upload invoices to the extent of 10% (earlier 20%) of ITC available to the recipient in GSTR-2A.

It applies from 9th October 2019. However, the upper limit stipulated under Section 43A for availing ITC on a provisional basis is 20% which needs amendment. With the new GST returns system, the provisions will be amended/relaxed to suit the process laid down by the new GST returns. Learn more about important changes introduced in the New GST Return

For more information about the new GST return system, read a host of articles on ClearTax:

• How to claim the refund of tax paid on Exports under the new GST return system
• Frequently asked questions on new GST return system
• Old vs New GST Return Filing System Comparison
• Invoice Management Under the New GST Returns: Viewing, Locking, Pending, Missing Invoices