By Archit Gupta
Input tax credit under GST has a very well-defined structure and is more comprehensive than the erstwhile indirect taxes. Cross-utilisation of credit between the Integrated GST and the Central GST/ State GST and vice-versa is another landmark departure from the previous regime. With one year of GST coming to a positive closure, let’s take a look at present notables regarding input tax credit and the likely future focus around it.
Beginning of a new financial year means that many SMEs must have already closed their books or accounts or will do so in near future. This process will also involve reconciliation and statutory audit. Since GSTR 2 filing is suspended, the input tax credit claimed in the GSTR-3B is provisionally admitted by the GST authorities.
This may be though be subject to a thorough process of reconciliation and a notice of mismatch may be issued if a discrepancy is found. In fact many businesses have already got the notice of mismatch between their GSTR-1 and GSTR -3B filed for previous months. The provisional ITC declared in GSTR-3B is credited to the electronic credit ledger of the claimant and can be used to set off the self-assessed liability of GST of the current month.
It is important to note that the working mechanism of set off of ITC under GST is unlike the previous regime. The claim, utilisation, matching and reversal of Input tax credit under GST works on the basis of a self-declaration model. The existing balance of ITC carried forward from previous month shall be utilised only after exhaustion of the current month provisional ITC, towards setting off the GST liability. In other words, if taxpayer reported tax liability in the GST returns of the previous month, but did not pay the same, then the provisional ITC of the current month cannot be utilised for the payment of that liability along with the Interest thereon.
A taxpayer who has not availed the eligible ITC of any of the previous months, may avail such ITC in any of the subsequent months, but anytime either before the filing of the annual return or filing of the GST Returns for September belonging to subsequent financial year, whichever is earlier. Within the same time frame, any amendments to the previously filed GST returns of a financial year can be made.
For instance, the annual returns for FY 2017-18 must be filed by 31st December 2018. The due date for GST returns for September 2018 is October 20, 2018. One must file any amendments or corrections or fresh claims of ITC before the earlier of these two dates.
Once the GST returns for September 2018 or Annual Returns for FY 2017-18 is filed, no changes will be allowed to GST payments made. Another important rule to note is a taxpayer has to reverse ITC claimed and utilised on a purchase invoice that remains unpaid for a period of one hundred and eighty days with Interest at 24% p.a for the six months. He may reclaim that ITC once payment is discharged. But if he fails to identify such default, then reversal of that ITC with charge of heavy penalties as determined by tax authorities is inevitable.
With the return simplification on the anvil, it is likely that there will be ease of documentation process, provisional credit may no longer allowed. Importantly the GST Council may do away with the automatic reversal of credit in case of recipient for incorrect filing by supplier.
The new system of GST return filing as recommended by the GST council in its 27th meeting has time till September to come into force. Under this proposed system, single GST returns needs to be filed with a parallel system of Invoice upload by sellers. These Invoices uploaded are visible to the buyers who can take action based on the gap between what they claim in their GST returns and what is allowed to them as per Invoice uploaded by sellers. Further to ensure that the return filing happens smoothly without any IT glitches, it is proposed to have a staggered filing during a month for different class of taxpayers based on their turnover.
Another five months from today, B2B dealers can continue to provisionally claim input tax credit in the same manner as current system through self declaration by filing GST returns for further six months. A year from now, the new return filing interface will be ready and the claim of credit will then be based on invoice uploaded by sellers and acceptance thereof on regular basis by buyers.
So, we can expect more emphasis to use of technology and automatic credit under GST in future months. The whole idea of GST return filing and claim of ITC is unification of the GST system to bring transparency to all stakeholders.
The writer is Founder & CEO ClearTax.