GST returns are statements companies must submit to the government to record their taxable sales and purchases. On the other hand, the Input Tax Credit (ITC) is a credit that a business can claim on the GST paid on inputs and use to reduce the GST liability on the output.

The new GST return filing system should streamline regular returns filing and ITC tracking. This article discusses the procedure for claiming Input Tax Credit (ITC) on purchases.  It would specifically deal with input tax credit claims made under the new GST returns system, which was scheduled to go into effect starting in April 2020. The new GST return system, however, has been halted.

The New GST Returns Compared to the Current Ones

According to the GSTR-1 and GSTR-3B systems, the recipient claims the tax credit based on the sales invoices the seller or supplier uploaded. The provisional credit (without invoice upload) is only permitted in GSTR-2B (earlier GSTR-2A) up to 5% of ITC. Credit was granted based on the purchase invoices on the buyer’s record under the pre-GST regime, but this system is different.

But with the new GST return system, e-invoicing, ANX-1, and ANX-2 will all be used to track ITC claims. The problem back then was that the seller issued tax invoices, and the buyer took advantage of the credit without knowing that the seller didn’t pay the government’s taxes. The government suffered a financial loss as a result, so it became necessary to implement a system whereby credits are only made accessible to the buyer upon the payment of tax by the seller to the government.

ITC Claim Under the New System for Filing GST Returns

Currently, GST credits must be claimed using the steps mentioned below:

1. Each month/quarter, a seller submits the invoice-by-invoice sales information by the eleventh day of the following month (or 13th of the month after the quarter). It is based on how frequently the taxpayer files GSTR-1 on the GST portal.
2. The buyer can access the seller’s invoices uploaded in GSTR-1 on his GSTR-2B form.
3. Based on the tax invoices supplied by the seller and reported in his GSTR-2B, the buyer may claim an input tax credit in the GSTR-3B form. The claims in GSTR-2B for a tax period may be up to 105% of the eligible ITC. Therefore, taxpayers may claim an additional 5% in ITC for invoices or debit notes that the related suppliers have not uploaded to GSTR-2B. Suppliers must be reconciled and updated when they post invoices throughout the succeeding tax periods.

The department may issue a notice asking for an explanation if the provisional input tax credit claimed on purchases in GSTR-3B is higher than the amount shown in GSTR 2A. The department can refuse credit for invoices for which the seller still needs to pay the relevant tax.

ITC Claim Under the New System for Submitting GST Returns

The new GST returns are based on one of three returns (RET-1, RET-2, or RET-3), each of which is accompanied by an annexe (ANX-1 and ANX-2). Out of these forms, ANX-2 is significant since the taxpayer can use it to accept, reject, or mark outstanding payments for ITC claims. The revised GST return structure is illustrated in the following table:

Annual Turnover*	Return Type
More than Rs.5 crore	Regular Monthly Return
Less than Rs.5 crore	a) Regular Quarterly Return
	b) GSTR Sugam Return
	c) GSTR Sahaj Return

The option to file quarterly returns and one of the returns mentioned above would be available to assessees having a turnover of less than Rs. 5 crores.

• The supplier will be able to post invoices at any moment during the month continually, and the recipient will be able to view them at any time.

• The recipient’s annexure for inward supplies will automatically populate with invoices submitted by the respective suppliers in real-time. The recipient can access these invoices via the “viewing facility” available on the portal.

• After the 10th of the next month, the recipient can take particular actions in relation to the bills that are accessible through the “viewing facility”:
  • Accept – If he decides to use the credit.
  • Reject – If he decides not to use the credit or does not make the transaction.
  • Pending – If he wishes to claim the credit in the upcoming term.

• The appropriate field of the input tax credit table of the return that the recipient must file must contain the credit related to the inbound supply they have accepted.

• Once the recipient has approved an invoice, it is said to be “locked,” meaning no modifications can be made. As it may be challenging to respond to each invoice when the recipient has a substantial number of them, all invoices will be considered accepted and locked, except those marked as pending or rejected.

When an invoice is submitted, but the supplier has not paid the tax, the input tax credit shall not be automatically reversed at the recipient’s end.

Recovery of unpaid taxes from a supply must primarily come from the supplier. In exceptional circumstances such as the taxpayer’s absence, supplier closure, insufficient assets, or recipient’s illegal input claim, recovery may also be taken from the recipient.

Invoices That the Supplier has not Uploaded

The recipient would have the option to use the provision of availing ITC on missing invoices during the initial six-month implementation phase of the new GST return system, even on invoices the supplier has not posted by the 10th of the following month. The seller must file the input that the recipient claimed on the unpaid invoices during the following two tax periods.

The input claimed by the recipient will be revoked with interest and a penalty if the supplier does not file the same. For instance, throughout April 2018, Mr A bought products from Mr B. However, Mr B did not disclose this in his April 2018 tax returns. While B must submit the same by June 2018 returns, A can claim the credit in April 2018. If B doesn’t report it by June 2018, the ITC that A claimed will be reversed in July’s returns, along with interest and penalties.

Section 43A’s Applicability to the New GST Return System

An amendment to the CGST Act added a new section 43A in 2018, providing a mechanism for the recipient to claim the input tax credit even if the supplier does not include all necessary information in his reports. Following this section’s notification of rule 36(4), the receiver may still be eligible for ITC up to 10% (initially 20%) of the ITC available to the recipient in GSTR-2A, even if the supplier does not upload invoices.

Beginning on October 9, 2019, it is applicable. However, Section 43A’s 20% maximum limit for claiming ITC temporarily has to be changed. The provisions will be modified to comply with the new GST returns system’s procedural requirements.

Conclusion

The new GST return filing system has streamlined the process of claiming Input Tax Credit (ITC) for businesses. The new system allows for real-time matching of invoices and simplifies the process of claiming and adjusting ITC. However, businesses must ensure that they maintain accurate records and comply with GST regulations to avoid penalties and interest charges. By properly managing ITC under the new system, businesses can improve their cash flow, reduce tax liabilities, and ensure financial stability.