GST Changes: Input Credit Restriction

by Sanjeev Archak Sanjeev Archak No Comments

Another set of changes to GST law has been announced on 20.10.2019. This time the GST Council has decided to restrict the input credit available to tax payers. Consequently, input credit  in respect of invoices/ debit notes not uploaded by suppliers (i.e. not appearing in form GSTR-2A) cannot be availed in excess of 20% of the eligible ITC pertaining to invoices / debit notes uploaded by the suppliers. This input credit restriction is explained as an illustration below:

Particulars Actual ITC Eligible ITC after amendment
Input credit for Oct                       1000  
Input credit appearing in GST 2A 600  Rs 600 is available as credit
Input credit not appearing in GST 2A 400 Rs 120 (600*20%) or Rs 400 whichever is lower i.e, Rs 120 is available as credit
Total GST Input Credit   Rs 720

This amendment will create multiple problems for tax payers and tax professionals.Starting October 2019, all tax payers will have to reconcile the input credit as per books of accounts and GST 2A. Further, the differences between the two will have to be communicated to the vendors. This is essential to avail input credits.

How will this impact quarterly return filers?

As per the GST law, tax payers with an annual turnover of less than 1.5 crores have the option of filing GST 1 returns quarterly. If you are business filing monthly GST returns and your supplier is filing quarterly returns, then there is bound to be a input credit mismatch. This will lead to a situation where large businesses will stop buying from small vendors. 

How will the GST portal identify ineligible credits?

All manner of GST credits are reflected in the GST 2A. The GST portal does not have any facility to distinguish between credits which can and cannot be availed. This being the case using GST 2A as measure to avail input credit is not a good idea.

Is a return matching tool available to tax payers?

The new return structure is supposed to include a matching tool. However, the launch of this tool has been put off till April 2020. The absence of this tool means that tax payers will have to invest in resources and systems to do the reconciliation. Further, there is a time constraint as GST returns have to filed on the 11th and 20th of the month. Setting aside weekly off days and one day for tax payment, the tax payers have a small time window to match GST credits, reverse ineligible credits, re-avail reversed credits and compute tax payable.

How will this impact compliance costs? 

The GST has already increased compliance costs due to complicated returns schema and multitude of returns. GST law has been amended countless times since inception. Huge number of clarifications/notifications/ circulars have been released making matters even more complex. Further, this amendment also burdens tax professionals with more work prior to filing returns. This is bound to push up compliance costs.

Final Thoughts

The Government has not thought through this idea before implementation. There are basic errors in this idea which have not been addressed. Moreover, this idea does not address month end movement of goods i.e goods/services provided at the month end with invoices being raised,such goods/services received in the next month. There is bound to be input credit difference in this case as well. 

A business owner will now have to chase all his vendors for input credits. Are business owners supposed to run business or worry about paper work? Chasing vendors will take up a huge resources and effort. Entrepreneurs are supposed to create jobs and fuel the economy. They are not be burdened with compliance clutter. These amendments to the GST are law are wholly unnecessary.  



How to Manually File GST Refund Claims

by Sanjeev Archak Sanjeev Archak No Comments

The Government of India is introducing new policies for the benefit of the nation. Last year in November government introduced Demonetization to prevent hoarding of black money and in July 2017 it introduced Goods and Services Tax, a group of indirect taxes which replaced a lot of indirect taxes levied by State and Central Government. In November 2017 in order to simplify the process of GST refunds, Government introduced a Circular No. 17/17/2017 stating the process of –“How to Manually File GST Refund Claims”. Here I will help you to understand the procedure in a better and easy way.  Read more

GST FAQs on Composition Scheme

by Sanjeev Archak Sanjeev Archak No Comments

Our second part in the GST FAQs series deals with the Composition Scheme which was introduced under the Goods and Services Act keeping the best interests of small businesses in mind. SMEs often face the challenges of maintaining various compliances with the statutory bodies of the country in a timely manner.

Composition Scheme permits the taxpayer to choose for making GST payments as a fixed percent of the business turnover rather than paying those taxes under regular norms of the GST law.

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Valuation in GST – Rules for Supply of Goods or Services

by Sanjeev Archak Sanjeev Archak No Comments

Section 15 of the CGST Act and Determination of Value of Supply, CGST Rules, 2017 contains the provisions related to the valuation in GST for the supply of goods or services made in different circumstances and to different persons.

Valuation in GST

Every fiscal statue makes provision for the determination of value as the tax which is normally payable on ad-valorem basis. In GST also, the tax is payable on ad-valorem basis i.e percentage of value of the supply of goods or services.

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Accounts and Records under GST

by Sanjeev Archak Sanjeev Archak No Comments

Section 35 of the CGST Act and “Accounts and Records” Rules (hereinafter referred to as rules) provide that every registered person shall keep and maintain all records at his principal place of business. It has cast the responsibility on the owner or operator of warehouse or godown or any other place used for storage of goods and on every transporter to maintain specified records.

It also provides that every registered person whose turnover during a financial year exceeds Rs 1 crore shall get his accounts audited by a chartered accountant or a cost accountant.

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CGST Rate Schedule Notified By The Government

by Sanjeev Archak Sanjeev Archak No Comments

On 28th June 2017, under sub-section (1) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government notified the CGST rate schedule applicable to goods. This notification shall come into force with effect from the 1st day of July 2017.

As per the Goods and Services Tax Regime, both Central GST (CGST) and State GST (SGST) will be levied on all supplies that are intra-State in nature. For supplies that are inter-State, Integrated GST (IGST) will be levied on it. The revenue generated on the same will be shared by both the Central and State Government.

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Ways to File an Appeal under GST

by Sanjeev Archak Sanjeev Archak No Comments

Previously, we spoke about the various Anti-Profiteering rules under GST Law. Today we will be talking about the ways of filing an appeal under GST regime.

Laws, in general, impose two kinds of obligations. The first obligation is related to tax and the second obligation is related to the procedure. Any registered taxpayer’s compliance with these two types of obligation is put to check by the various officers of the law.

Sometimes this entire process might lead to certain situations of non-compliance which further leads to a dispute between the taxpayer and the concerned tax officer. To put these disputes in check, there are appeal mechanisms set in place.

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Types of Electronic Ledgers under GST

by Sanjeev Archak Sanjeev Archak No Comments

After the Goods and Services Tax is implemented, every individual taxpayer registering under GST will be able to access the GST common portal by using their individual login credentials. After a successful login, the taxpayers will be able to access the dashboard and all the various features being presented. Under the GST common portal, every taxpayer will also be able to access the three kinds of electronic ledgers under GST.

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Audit under GST Law – What Taxpayers Need to Know

by Sanjeev Archak Sanjeev Archak No Comments

Section 65 of the GST empowers the GST authorities to conduct an audit of the tax payers. The audit under GST shall be conducted at such frequency and in such manner as provided under GST law.

The audit shall be conducted at the place of business of the registered person or in their office. Prior to conducting the audit, the taxpayer shall be informed by way of notice not less than fifteen working days prior to the conduct of the audit.

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