Avail ITC in GST as per Section 16(2) (aa) of CGST Act, 2017

Businesses must claim Input Tax Credit (ITC) that shows only in GSTR-2B from January 1, 2022. As a result, Rule 36(4) of the CGST Rules is rendered obsolete, and the new clause (aa) under Section 16(2) takes effect. This article goes into depth regarding the shift, how it affects businesses, and how companies may avail ITC in GST as per Section 16(2) (aa) with the assistance of Legal Window specialists. 

Introduction

Section 16(2) of the CGST Act, 2017 specifies the requirements that must be met before a registered person can claim ITC of GST charged on inward supplies of goods or services or both. Possession of the required document, payment of tax, filing of returns, and so on are among the prerequisites.

The Finance Bill, 2022 proposes a modification to the preceding paragraph to include new criteria for receiving the ITC. It has been said that ITC on invoice or debit note can only be claimed if the details of such input tax credit in respect of said invoice/debit note are not prohibited in the GSTR-2B.

As a result of this proposed change, the registered person would be entitled to claim ITC only if the information of invoices/debit notes made accessible to him electronically on the GSTN Portal are not restricted in the auto-generated statement known as GSTR-2B.

What is stated in the new clause (aa) of Section 16(2) of the CGST Act, 2017?

Avail ITC in GST as per Section 16(2) (aa) – New clause (aa) of Section 16(2) of CGST Act, 2017.
The CBIC has announced that the additional requirement in clause (aa) of Section 16(2) of the CGST Act, 2017 would go into effect on January 1, 2022. On December 21, 2021, it published Central Tax Notification Number 39/2021 to implement Section 109 of the Finance Act, 2021, which contained this modification.

Before claiming ITC in their GSTR-3B, receivers have to meet requirements under Section 16(2) of the CGST Act, 2017. These included having a GST invoice, receiving the goods or services, paying the applicable tax to the government, and reporting the GST invoice in GSTR-3B.

You can now obtain ITC if your vendor discloses that invoice or debit note in their associated GSTR-1 or Invoice Furnishing Facility, which is a recently introduced criterion (IFF). Finally, it must be located in your returns that Section 38 automatically generates, such as GSTR-2B. Due to its static nature and regular availability in accordance with GSTR-3B, it may be used as a return in place of GSTR-2A.

An amendment to Rule 36(4) was proposed by the GST Council during its 45th meeting in September 2021. The change, which added the same criterion as clause (aa) of Section 16(2), was announced on December 29, 2021, by Central Tax Notification No. 40/2021.

What would happen if the temporary ITC is eliminated, and how should businesses manage ITC?

The elimination of this advantage will result in more obligations for the enterprises. They will also encounter brand-new difficulties that can only be solved by technological assistance.

If your company makes any more ITC claims or fails to follow this new requirement, you might face fines or have your GSTIN suspended. Businesses may have subpar ITC claims if they wait too long to take action, which would hurt their profitability and, in turn, their working capital.

Even though many companies understand the value of routine reconciliation, they rely on the 5% additional ITC each tax quarter. Currently, businesses only perform reconciliations occasionally or right before a return’s due date. But if you keep doing this, companies will run out of time starting on January 1st, 2022 to communicate with vendors and follow up on unpaid bills. ITC reconciliations should now be dynamic, real-time, and performed for each payment cycle, preferably once a week or more frequently. The manual way is difficult, taxing, and time-consuming.

Businesses often communicate with their vendors every so often or once a quarter. It occurs during phone calls, text messages, and emails. But tracking becomes challenging because these are not connected to the ERP. Future enterprises must continuously remind non-compliant vendors to upload invoices by following up with them in real time. To drive out non-compliant suppliers once or twice a year, it may be necessary to postpone payments of the whole amount of outstanding invoices or GST. Companies did not, however, use tactics for quick posting bills or vendor ratings. When an invoice does not show in GSTR-2B by the 14th of the month following the quarter, payment for un-uploaded invoices should always be marked as “Hold GST until matched.”

Extension of the deadline to claim the Section 16(4) Input Tax Credit

The time restriction to claim ITC for GST charged on the inbound supply of goods or services or both is outlined in Section 16(4) of the CGST Act, 2017. An ITC may be claimed on invoices or debit notes up to the earlier of the following dates by registered persons:

• The end of the financial year to which such invoice or debit note relates, or the due date for submitting the report under section 39 for the month of September after that
• Providing the relevant Annual Return

The Finance Bill, 2022 contains an amendment that would extend the deadline by which a registered person may claim an input tax credit for invoices or debit notes relating to the relevant financial year.

A registered person can now claim ITC for invoices or debit notes up to the earlier of the following dates, according to the proposal:

• The 30th November following the fiscal year to which such invoice or debit note relates, or
• Providing the relevant Annual Return

The registered person will have extra time to use the ITC of the GST levied on the invoices/debit notes in relation to the inbound supply of goods or services, or both, as a result of this amendment.

No interest in simple ITC Availment Issues

The Finance Bill, 2022 sought to retroactively amend Section 50(3) to limit the imposition of interest to situations in which input tax credits were improperly claimed and applied for.

Interest may be assessed on excessive or unauthorized claims of input tax credits under Section 50(3). The clause makes no distinction between “ITC obtained solely” and “ITC availed and utilized”. According to the Finance Bill 2022, interest would only be charged if ITC was improperly used to pay for production responsibilities. If ITC is just incorrectly claimed and kept in the computerized credit ledger, no interest is due.

Some other Miscellaneous Changes 

Section 38 is being suggested as a replacement in the Finance Bill, 2022. According to the proposed change, Form GSTR-2B would list the supplies for which ITC would be payable and those for which ITC would not be available. In the proposed provision, numerous instances where ITC may be limited are described (such as where there is a default in payment of tax or filing of returns and such default is continued for a period to be prescribed, mismatch in a tax liability of GSTR-1 and GSTB-3B). Additionally, it is stated that the beneficiary is not eligible to get ITC in certain circumstances.

Additionally, it has been suggested that the idea of temporary ITC be dropped as there would no longer be any matching of returns.

Endnote

Every taxpayer must claim ITC on their inward supplies of goods and services or both are cross-checked with their supplier about whether they have filed Form GSTR-1 and Form GSTR-3B along with tax payment or not after the introduction of amended Section 16(2) (aa) of CGST Act, 2017, w.e.f. 1st January 2022. Otherwise, refrain from claiming ITC on their inbound supplies of goods or services, or both, to avoid paying a fine for claiming ITC incorrectly.

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