The CBIC made some important notifications on GSTR-3B on 9 October 2019. The announcements are crucial for all the regular taxpayers and especially those who were not serious about the GSTR-2A reconciliation or delaying the same as a year-end exercise.

What are the new GSTR-3B notifications?

Limitation to claim provisional ITC 

A taxpayer, filing GSTR-3B, can claim provisional input tax credit only to the extent of 20% of the figure appearing in GSTR-2A. The effective date of implementation is 9 October 2019.

(The notification no. 49/2019- Central Tax dated 9 October 2019 adds a new clause to the rule 36 of CGST Rules). 

Earlier, the 37th GST Council meeting held on 20 September 2019 announced that the provisional input tax credit (ITC) claims will be restricted under the present GST return filing system of GSTR-1 and GSTR-3B. ITC claim will not be allowed in full for any recipient if their suppliers have not furnished the details of outward supplies at all.

GSTR-3B made a legally valid return replacing GSTR-3 and GSTR-2 retrospectively

The GSTR-3B return has now legally replaced the GSTR-3 returns from a retrospective date of 1 July 2017. Until 9 October 2019, the GST law never replaced GSTR-3 with GSTR-3B as a valid return. Instead, it had declared GSTR-3B as a temporary return thereafter which GSTR-3 must be filed. However, GSTN never built the facility for GSTR-3 that auto-fills information declared in GSTR-1 and GSTR-2. Moreover, both GSTR-2 and GSTR-3 were suspended in November 2017. 

(The notification no. 49/2019- Central Tax dated 9 October 2019 amends the rule 61 of CGST Rules)

Law before the GSTR-3B notifications

Provisional ITC

Before 9 October 2019, all taxpayers claimed ITC on a provisional basis in Table 4(a) of GSTR-3B. It means, they declared the summary figure of eligible tax credits under IGST, CGST, and SGST. There was no compulsion to reconcile the ITC figure with GSTR-2A, although it was always advised. But now, the ITC amount will be restricted only to the extent of 20% of the eligible ITC value already reflected in GSTR-2A for that period. 

GSTR-3B now a valid return

Many taxpayers who missed claiming ITC for a given FY even after the September returns, had continued to claim so till the date of their annual return. Let’s understand this in detail.

The GST law specifies in Section 16(4) of CGST Act that one can claim the tax credit by the earlier of two dates: 

(1) Due date of GST returns of September of the year following the FY. 

(2) Due date of Annual return.

But when one interpreted the term ‘GST returns’ mentioned at (1), it was GSTR-3 and not GSTR-3B, by law. However, the GSTR-3 return was never in use. Therefore, the deadline for claiming ITC could have been interpreted as the due date of the annual return itself. The taxpayers were choosing to interpret the GST laws liberally and were taking the input tax credit in their annual return filing.

So far, many taxpayers across India have contended this matter before the State High Courts. HC has directed to stay the demand orders reversing such ITC claims. But henceforth, all such pronouncements favouring taxpayers on this matter will be void.

Issues due to the GSTR-3B notifications

Provisional ITC

  • The notification does not specify the return period for implementation

The date of applicability is 9 October 2019. The notification specified that the new rule would apply from the date it is published in the Official Gazette. The O.G was published on 9 October 2019. However, whether the new rule applies to September 2019 return or the October 2019 return onwards is yet to be clarified. If the notification applies to September 2019 return, it can have multiple implications on FY 2018-19 closure.

  • Should 20% be calculated at supplier-level or at an aggregate level?

The rule has not specified any point on whether the 20% shall be calculated for every supplier whose ITC is reflected partially in GSTR-2A or at as a total figure in GSTR-2A (cumulative of all suppliers). The illustration given below will give insight into this.

GSTR-3B now a valid return

  • Does this mean all ITC claims made beyond March 2019 are invalid?

The retrospective notification has come at a point in time when disputes are pending before high courts around the ITC claims in GSTR-3B. Many taxpayers may have to withdraw since those ITC claims may become invalid.

  • Taxpayers must reconcile YTD for 18-19 and claim all eligible ITC in GSTR-3B of September 2019

For September 2019, the GSTR-2A reconciliation with GSTR-3B becomes more important. All taxpayers should note that they cannot go by the annual return due date as it was being done before. GSTR-3B is a valid return for the purpose of deciding the deadline for ITC for FY 2018-19 and hence, 20 October 2019 is the last date to file those ITC claims. 

ClearTax’s Advanced Reconciliation feature helps taxpayers to make 100% claims of ITC easily. It helps users to import purchase data of any size from the ERP systems smoothly and quickly, with a variety of options. Users can also download GSTR-2A for multiple months with a click of a button. Thereafter, users can identify the eligible ITC against invoices missing in GSTR-2A or their purchase books through reports. Ultimately, they can share these reports with multiple vendors, thereby allowing ease of communication and follow-ups.

4. Examples to understand the working of provisional ITC

Let’s decode the new rule on provisional ITC limit with an example. Suppose a taxpayer is filing GSTR-3B for October 2019 in November 2019. The table given below shows how a taxpayer declared details of ITC in GSTR-3B before and after the change.

 (Amount in Rs)

Sl No Particulars Before After
A Eligible ITC available in Purchase register 28,000 28,000
B Total ITC available in GSTR-2A 20,000 20,000
C ITC ineligible in GSTR-2A 2,000 2,000
D=B-C Net eligible ITC as per GSTR-2A 18,000 18,000
E=A-D ITC not available in GSTR-2A 10,000 10,000
F Actual ITC (supported by GSTR-2A) 18,000 18,000
G Provisional ITC  10,000 Lower of E and 20% of D

3,600

H=F+G ITC that can be taken in GSTR-3B of October 2019  28,000* 21,600
ITC not allowed in GSTR-3B of October 2019  None 7,600 (=28,000 – 21,600)


* Chosen at the discretion of the recipient. Alternatively, the recipient can also claim Rs 18,000 in the current month. He must reconcile GSTR-2A with purchase register. Communicate the list of missing invoices to his non-compliant supplier to be reported in their corresponding GSTR-1 before 11th of next month. Accordingly, he can claim the missing credits of Rs 10,000 as actual credit in GSTR-3B of later months.

As per the previous regulations, he could have claimed the entire Rs 28,000. In the subsequent month, he could have adjusted this provisional claim against GSTR-2A of future months for those invoices. It required a year-to-date reconciliation and tracking of invoices later on.

Upon the enforcement of the latest regulations, he will be able to claim only Rs 21,600 in GSTR-3B of October 2019:

    • Rs 18,000: Actual ITC based on information available in GSTR-2A
    • Rs 3,600: Provisional ITC based on the calculation, i.e. 20% of ITC available in GSTR-2A

Let us look into the further breakdown of the ITC figure amongst the tax heads -IGST, CGST and SGST with the help of the same example:

 (Amount in Rs)

Sl No

Particulars

CGST

SGST

IGST

A

Eligible ITC available in Purchase register

8,000

8,000

12,000

B

Total ITC available in GSTR-2A

5,000

5,000

10,000

C

ITC ineligible in GSTR-2A

1,000

1,000

0

D=B-C

Net eligible ITC as per GSTR-2A

4,000

4,000

10,000

E=A-D

ITC not available in GSTR-2A

4,000

4,000

2,000

F

Actual ITC (supported by GSTR-2A)

4,000

4,000

10,000

G

Provisional ITC (Lower of E or 20% of F)

800

800

2,000

H=F+G

ITC that can be taken in GSTR-3B of October 2019 

4,800

4,800

12,000

There is another way of interpreting the 20% rule. We may also assume that provisional ITC is calculated for each supplier at 20% of the ITC available in GSTR-2A for each of such supplier.  Until CBIC comes out with a clarification, taxpayers may adopt either of the two ways to interpret the rule.

Let us understand this by taking the same figures from the above illustration. Assume that the ITC in GSTR-2A of Rs 18,000 is bifurcated among Supplier A, B and C.**

 (Amount in Rs)

Particulars* Supplier A Supplier B Supplier C Total
Eligible ITC available in GSTR-2A (P) 8,000 6,000 4,000 18,000
Eligible ITC available in Purchase register(Q) 18,000 6,000 4,000 28,000
Difference(X) 10,000 NIL NIL 10,000
20% of Eligible ITC as per GSTR-2A(Y) 1,600 (20% of 8,000) Not applicable Not applicable 1,600
ITC allowed in GSTR-3B of October 2019

( R=P+ Lower of X or Y)

9,600 6,000 4,000 19,600
ITC not allowed in GSTR-3B of October 2019 (Q-R) 8,400 None None 8,400

**Subject to any CBIC clarification

5. What must be done before filing GSTR-3B?

Before a taxpayer can declare the ITC figure in GSTR-3B, he should reconcile the purchase register and expense ledger for that period with GSTR-2A of the same period, preferably by the 20th of the next month. 

The taxpayer is required to permanently set up a system of invoice tracking and a continuous communication link with every vendor/supplier. Even before the filing of GSTR-3B, reconciliation becomes mandatory. There is no clarity on when the new validations in GSTR-3B will be live on the GST portal. 

It is important to take note of a provision that was added to the CGST Act in February 2019, Section 43A. The section specified the same condition but would become applicable only when the rules were notified. This provision would hold relevance once the new GST return system with ANX-2 and RET-1/2/3 come into effect. 

But the rules are notified sooner than expected; the new GST return system will be implemented in April 2020. Hence, all the regular taxpayers must follow this rule for present GST returns filed in GSTR-3B.

However, it seems evident that the onus of declaring genuine ITC values in GSTR-3B is that of recipient himself, similar to the new GST return system. The limitation will also help curb the menace of tax evasion using fake invoices.

6. How can ClearTax help?

The ClearTax’s Advanced Reconciliation feature helps you identify gaps in GSTR-2A with purchase books. Users can choose to take suitable action for ITC claims by either choosing values as per books of accounts or values as per the GSTR-2A with smart filters. Further, the tool eases the vendor communication where users can get access to compliance reports which can be shared with multiple vendors with a click of a button.

 

GSTR 9 filing LIVE

File Annual Returns Error Free with Cleartax

image-for-cta-300px
File GSTR-9 Now