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Claiming more than 105% of the ITC as shown in GSTR 2A may offer notice of revocation or cancellation of registration.
If you assert the ITC in the GSTR 3B return for a sum that exceeds the specified limit as set out in Rule 36(4), we will inform you of the problem you may face.
The prescribed limit for ITC availability pursuant to Rule 366 (4)
Govt. has altered Rule 36(4) of CGST Rules 2017 and the overall limit for claiming Input Tax Credit has been reduced to 105 percent as shown in GSTR 2A.
This limit was originally 120 percent, which was lowered to 110 percent and eventually to 105 percent now.
Chronology tabulated as under-
|
With Effect From |
Limit on ITC Availment |
|
09/10/2019 |
120% |
|
26/12/2019 |
110% |
|
01/01/2021 |
105% |
Consequences of stating that the ITC exceeds the limit prescribed ie 105%
If the ITC is stated to be more than 105 percent, the Officer can initiate or issue a Mismatch Notice under Rule 21(e) of the CGST Rules 2017 to cancel registration proceedings. ?
Difference between the provisions of Rule 21(e) and Rule 21A (2A)
While, this case is comparatively better than the proceeding initiated in Rule 21A (2A) of CGST Rules 2017 because of the mismatch in Details, as you are released a Display Notice and given the opportunity to justify the justification for demanding more than 105% of ITC. So, a number of improvements in operations and new methods of evaluating organisations were made by the GST department.
What you should do in such Cases
Because of this reform by the Govt., many issues may arise, even though you use the eligible amount of ITC. Following are the key points that should be kept in mind with reference of relevant to ITC related issues:
- Along with reconciling party-wise and invoice-wise papers, make sure to maintain the back-calculation sheet. This will encourage you to understand the amount you will use at all times and reduce mistakes.
- Ensure that you should only consider the eligible amounts to be used by the ITC. The eligible amount is the amount recorded in GSTR 2A with a GSTR 1 Return Filing Date and which could be stated as an ITC.
- If you use ITC, including the amount of previous months, the cumulative amount in most cases will reach 105 percent. Where more than 105 percent is used, ensure that the Jurisdictional Superintendent is intimated in advance (via written intimation).
- All of this can be accomplished manually or by excel, but every month reconciling and that too invoice-wise becomes almost challenging, even though excel the number of invoices is negligible. While this can easily be accomplished through software, you must still use GST software that reconciles GSTR 2A, 1, and 3B as well as alerts you of problems right as they arise.
- Using Bi software such as Power Bi, Tableau with Angular JavaScript, Python's that can quickly recognize key ratios and red flags so that you can take steps before the department and correct errors.
If you have concerns about handling your company's ITC and other aspects of GST and want to improve your knowledge of business and statistics. You are welcome to Rajput Jain and Associates, we will help you get comprehensive knowledge on how your company is treated by the Department and stop all sorts of potential problems!!!
