GST NOTIFICATION NO. 49/2019-CENTRAL TAX

The CBIC issued a notification 49/2019-Central Tax dated 9th October 2019, inserting a new sub-rule (4) to rule 36 of the Central Goods and Service Tax Rules, 2017. This rule provides restriction in availment of input tax credit.   

As per rule 36 and sub rule 4, taxpayers filing GSTR-3B can claim provisional Input Tax Credit to the extent of 10% of the eligible credit available in GSTR-2A. The eligible credit means input tax credit arrived on the basis of invoices or debit notes uploaded by the supplier in GSTR-2A. The input tax credit was earlier restricted up to 20% from 9th October 2019 till 31st December 2019 and from 1 January 2020 the new percentage applies.

IMPACT OF THIS RULE ON TAXPAYERS:
Before this rule, all taxpayers are allowed to claim input tax credit on self declaration basis i.e. the taxpayer declares the eligible input tax credit under various heads of tax (CGST, SGST, IGST). Before this rule, the taxpayer has no compulsion to reconcile input tax credit figure with GSTR-2A. In this scenario, even if GSTR-2A shows less credit than books of accounts, taxpayer can claim difference of that input tax credit as a provisional credit.   
After implementation of rule 36 and sub rule 4, the provisional input tax credit will be restricted to the extent of 10% of eligible credit reflected in GSTR-2A of that period and the balance tax liability of GST to be paid in cash.
As an impact of this rule working capital of taxpayers will be affected because he will be required to pay tax liability in cash due to non reflection of tax credit already paid to supplier on tax invoice raised to him. 

HOW TO CALCULATE PROVISIONAL TAX CREDIT:
Let’s understand the impact of new rule on input tax credit. If the taxpayer ids filling his GST return for the month of January-2020 than how he would claim input tax credit in his GST Return and understand impact of this rule on taxpayers:   

Sl No     Particulars                                                                            ITC Before this rule    ITC After this rule
1            Eligible Input Tax Credit as per Books of Accounts                      50,000                       50,000
2            Eligible Input Tax Credit as per GSTR-2A                                    20,000                       20,000
3            Input Tax Credit that can be claimed as provisional credit           30,000                         2,000

                                                                                                                                                  (20,000*10%)
4=(2+3) Total Input Tax Credit that can be claimed in GSTR-3B               50,000                       22,000
5=(1-4)  Input Tax Credit not allowed in GSTR-3B                                        Nil                          28,000

After applicability of this new rule, taxpayer will be able to claim only 2,000 as provisional tax credit in GSTR-3B for the month of January-2020. The balance input tax credit of Rs. 28,000 can be claimed in later tax period when it reflects in GST-2A.