India Entry & Business Startup Consultings

20% Capping on Unreconciled GST Input Tax Credit (ITC)

20% Capping on Unreconciled GST Input Tax Credit (ITC)

The government recently declared to limit input tax credit under the goods and services tax to 20% of the eligible amount for a business if its supplier has not uploaded appropriate invoices specifying the payments made. There exists no limitation on unreconciled GST Input Tax until now and input tax credit was requested by taxpayers on self-analysis of the invoices. This latest amendment will result in the creation of cash flow issues for businesses that would face an increased burden until input tax credit is claimed.

  • Reconciling GSTR-2A and books: All GST registered assessee should make themselves ready for reconciling GSTR-2A and books before availing input tax credit because of the amendment brought by the government via notification no 49/2019 - Central Tax dated 09-10-2019 by which rule 36 of CGST Rules, 2017 has been amended.
  • Avail 20% of the total eligible balance of invoices: Now after reconciling GSTR-2A with books, the balance unreconciled amount of invoices or debit note as appearing in books can be availed by registered person maximum up to 20% of the total eligible balance of invoices or debit note appearing in GSTR-2A.
  • Transparency and Accuracy: The government is looking for transparency and accuracy in the transaction done by the taxpayer. In the past we had noticed in TDS online returns in 2007-08, the government has brought with 100% PAN mandatory which was earlier 70%. We hope that the government may not follow the same policy in GST as well.

ASC is also doing reconciliation clients with the help of customized GST software. This is a huge modification as the same would require undertaking monthly resolutions and follow up with vendors on a real-time basis. Also, the limitation may lead to a negative flow of cash.


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