Amendment in Tables of Form GSTR - 3B related to Input Tax Credit (ITC)

Currently, many taxpayers only record the ITC on an eligible inbound supply in their ITC ledger, and the ITC is required to be respected in the following scenarios:

1. If cancellation of ITC is requested on account of ordinary inward supply used for both taxable and exempt outward supplies in terms of rules 42 and 43; or
2. Cancellation and refund of ITC in case of non-payment of consideration to sellers within 180 days from the invoice date; or

Any reversal on account of earlier misapplication and application of ITC in respect of ITC on inward supplies u/s 17(5), the taxpayers shall not record the same and transfer such ITC directly to the profit and loss account. Furthermore, at the time of utilization of ITC in the GSTR 3B amendment, reconciliation is made between the static statement of ITC in form GSTR – 2B and the ITC recorded in the books of accounts as stated.

After such approval and subject to the other provisions of Sections 16 and 17 of the CGST Act as read with the rules made thereunder, the credit will be shown in the relevant fields of Table 4 of GSTR – 3B.

However, in view of the fact that the statement of the ineligible ITC under Section 17(5) in Table 4(D)(1) was only informative and the other direct costs of paying such credit on the books, many taxpayers were not reporting the amount of the ineligible ITC according to § 17(5) GSTR 3B amendment.

After the GSTR 3B amendment in Table 4(B), it has been clarified that all ITCs available in GSTR 2B including ITCs ineligible under section 17(5), Rules 42,43 and 38 and re-available ITCs (earlier canceled due to ineligibility under section 16(2)(c) & (d) and rule 37) should be transferred to Table 4(A). Thereafter, the ineligible ITC under the above provisions will have to be shown separately in Table 4(B). Consequently, the net ITC as per Table 4(C) i.e. [4(A) – 4(B)] will be credited to the electronic credit book only.

Hence, it is mandatory to record all ineligible ITCs also, even if they are absolute in nature and cannot be recovered e.g. ineligible ITCs under Rule 38 or Section 17(5), etc.

Accordingly, we believe that taxpayers will have to make changes in their way of accounting for recording ITC by categorizing it in accordance with the various applicable provisions of the GST Act.

List of categories under various applicable provisions of the GST Act.

1. Ineligible ITC in the sense of § 17 paragraph 5
2. Ineligible and eligible for a refund of Input Tax Credit in terms of Rule 37 (non-payment of consideration within 180 days)
3. Ineligible ITC in terms of Rule 38 (cancellation of credit by a banking company or financial institution)
4. Ineligible ITC in terms of rule 42 (joint credit on inward supply of inputs or input services used for outward supply of both taxable and exempt supplies)
5. Ineligible ITC within the meaning of Rule 43 (joint credit note for the inward supply of investment property used for outbound supply of both taxable and exempt supplies)
6. Ineligible ITC considering to difference in place of supply
7. Ineligible ITC on expired invoices in the sense of § 16 paragraph 4
8. Ineligible ITC in the current tax period due to non-fulfillment of the conditions of § 16, e.g. receipt of invoice in the current month, but delivery received in the following month
9. Ineligible ITC used exclusively or by a party for non-business purposes
10. All other eligible ITC

Form GSTR – 2B also categorizes ITC as ineligible ITC in the following two cases:

1. Ineligible for ITC in case of delivery within the State where the place of the consignee is different from the place of performance
2. Ineligible ITC on expired invoices in the sense of § 16 paragraph 4.

In view of the changes in the reporting of ITC in Schedules 4(B) and (D) of GSTR – 3B, every taxpayer needs to review their existing way of recording ITC in books of accounts and make appropriate changes to ensure that the correct data is available for reconciliation with ITC in GSTR – 2B and smooth reporting in GSTR – 3B form.

For any queries regarding changes in ITC in Form GSTR 3B amendment, please contact ASC Group.

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