(I) New proposal to claim GST input credit

Dear Valued Associate,

The government has notified rules to restrict ITC claim for invoices that have not been uploaded by your supplier.

What is the change?

ITC will now be restricted for buyers if suppliers have not uploaded the invoice and deposited tax. Buyers will be able to claim only 20% provisional ITC. This means provisional ITC will be a maximum of 20% of the ITC for which invoices have been uploaded by suppliers.

Effective date

The CGST (Sixth Amendment) Rules, 2019 were notified on 9 October 2019 in Notification No. 49/2019- Central Tax and published in the official gazette on the same date. (including retrospective amendment)

Understanding the change in more detail

Suppose a taxpayer is filing GSTR-3B regularly where outward supplies and provisional ITC is claimed and taxes are paid. While filing GSTR-3B, he should reconcile the purchase register and expense ledger with GSTR-2A for that period. Suppose ITC appearing in GSTR-2A is Rs 20,000 and as per taxpayer’s own records, ITC should be Rs 30,000.

Previously, before this provisional ITC rule, he could have claimed the entire Rs 30,000 based on his own records. Later, at a subsequent month, he could carry out a detailed reconciliation and adjust this provisional claim against information as per GSTR-2A.

But now his provisional ITC claim cannot exceed Rs 24,000.

•             Rs 20,000 -Actual ITC based on information available in GSTR-2A

•             Rs 4,000 – Provisional ITC based upon the 20% rule, i.e. 20% of Rs 20,000

How you can prepare?

You should be able to restrict provisional ITC to 20% to avoid unclaimed ITC situations. Having a complete picture of the invoices sitting in your GSTR-2A will help you make proper ITC claims. Once you have claimed provisionally, you need to pursue errant suppliers and make them report invoices.

(II) Note For GSTR 9

GSTR 9 it is optional for Turnover less than 2 crores but if you don’t file by 30th  November 2019 than it will be deemed to be filed, meaning information available in the auto-populated form will be assumed to be final & filed.

(III) Everything about discounts and GST 

In the last GST Council meeting, an old circular related to post supply discounts was withdrawn. In this edition of Edge, let’s unravel everything there is to know about post supply discounts and GST.

What are post supply discounts?

Post supply discounts are discounts given by the manufacturer to the wholesaler or the retailer after supply. Basically, the supplier offers a reduction, allows lower payment for supplies that have already been made. For example – a manufacturer may offer year-end incentives, Diwali discounts, schemes to promote better sales. These are usually settled via credit notes.

What is the issue?

There are 2 concerns here

Firstly, how GST is to be charged on post supply discounts i.e. should GST be collected and paid on the full invoice value where a discount has later been given. Or should the supplier reduce the value of the invoice and hence collect a lower amount of GST.

Secondly, how ITC can be claimed – since the recipient has paid less to the supplier, should he reduce his ITC claim accordingly or can he claim ITC as per the original invoice which he paid for (and later received a credit note against).

What does GST law say about discounts?

Broadly speaking, GST law says that GST is not to be charged on discounts.

So the government issued 2 circulars to clarify –

An original circular was 92/11/2019-GST issued on 7th March 2019. Which meant to say that post supply discounts are a separate commercial transaction and do not impact GST. GST is paid and deposited as per the original invoice.

The second circular was 105/24/2019-GST issued on 28th June 2019. This circular confounded the problem. It said that any post-sale discount given by the supplier for which the recipient is required to do any advertising campaign or sales drive separately is treated as a separate transaction altogether. The value of the discount must not be reduced from the original invoice and GST will be charged on that transaction. No reduction is allowed on the original billing by the manufacturer. However, if the post-sale discount was given without any action to expect from the recipient, in that case, the post-sale discount will be reduced from the originally billed amount.

The second circular has now been withdrawn

The second circular was weird in its own way! How is a business supposed to objectively look at the nature of a discount – aren’t all discounts targeted at boosting sales, with at least some objective? The withdrawal of the second circular is welcome. Hopefully, the tax authorities will also allow buyers to claim full ITC based on the original invoice they paid for and not ask for a reduction based on the credit note. That will be a real test of the government’s intent here

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