How to deal with the 20% restriction on availment of Input Tax Credit

How to deal with the 20% restriction on availment of Input Tax Credit

The recent notification followed by a circular issued on 11 November 2019 states regarding restriction on availment of ITC. The ITC in respect of invoices or debit notes, the details of which have not been provided for by the supplier has been restricted.

This is not an automatic restriction by the portal and has to be exercised by the taxpayer himself on basis the reconciliation.

What’s the restriction?

The taxpayers claiming ITC on the basis of the invoices, are now required to ascertain if the corresponding details are uploaded by the supplier in their GSTR 1 consequently making it available as ITC in buyer’s GSTR 2A.

The amount of ITC to be availed by the taxpayers in respect of invoices whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible credit available in respect of invoices, the details of which have been uploaded by the suppliers.

On what Invoices/debit notes is the restriction imposed?

1. If a registered taxable person has not uploaded the details of the invoices/debit notes whose details are to be mentioned as per Section 37(1) of GST Act are restricted for the availment of ITC.

2. The taxpayer who paid on IGST on import, documents issued under Reverse Charge Mechanism etc. can avail full eligible ITC.

3. The restriction is only applicable on those invoices/debit notes on which credit is availed after 9 October 2019.

Calculation of restriction

Under this rule, the restriction is not imposed supplier wise. The credit available will be reconciled with the total eligible credit uploaded by all the suppliers combined.

The supplies on which ITC is not available under any provision will not be considered for calculating 20% of eligible credit available.

Amount of ITC to be availed

The ITC for the invoices/debit note whose details have not been uploaded shall not exceed 20% of the eligible credit available for the invoice and debit notes whose details have been uploaded.

The following illustrations can explain eligible ITC:

Case- taxpayer ‘A’ receives 100 invoices involving ITC of Rs. 10 lakh.

Details of supplies eligible for ITC 20% of eligible credit Eligible ITC to be taken
Suppliers have furnished 80 invoices involving ITC of Rs. 6 lakhs Rs. 1,20,000 Rs 7,20,000 [6,00,000 (amount eligible for ITC) + 1,20,000 ((6,00,000*20%) on the basis of details uploaded by the supplier)]  
Suppliers have furnished 80 invoices involving ITC of Rs. 7,00,000 Rs. 1,40,000 Rs. 8,40,000  (7,00,000 + 1,40,000)  
Suppliers have furnished 75 invoices involving ITC of Rs. 8,50,000 Rs. 1,70,000 10,00,000 (8,50,000 + 1,50,000*) *Additional amount of ITC availed shall be limited to ensure that ITC availed does not exceed the total eligible ITC.

What would be the impact of the restriction?

1. A hit on liquidity:  Currently the taxpayers with annual turnover up to 1.5 crore are required to furnish the GSTR 1 on quarterly basis while others are required to submit GSTR 1 on monthly basis. Further, all the taxpayers are required to settle the net GST liability every month through GSTR 3B and this is the return where the restriction is imposed, which could mean lesser availability of ITC as compared to previous months and consequently output liability will have to be settled through challan remittances.

2. Increased efforts in filing: This restriction now makes the reconciliation of ITC as per GSTR 2A with the ITC available as per Invoices, an exercise to be carried at-least on a monthly basis.

How to deal with this restriction?

1. Discuss with the supplier: Since it might have a big impact on the liquidity, where the supplier furnishes GSTR 1 on a quarterly basis especially in the cases where the credit period is not so high, as we would have already made the payment (incl. GST) to the supplier and we would again be required to make the payment for the deficient settlement of output owing to restriction on ITC. It would be a lot more convenient if the supplier submits GSTR 1 on a monthly basis or alternatively an arrangement can be made to increase the credit period.

2. Keep your Reconciliation on the track: Reconciliation of credits available as per GSTR 2A with the eligible credits as per available invoices has to be done on a more regular & frequent basis, so that we have a pre-information and we could follow up with the supplier to do the timely compliance.

3. When can the balance ITC be claimed: Balance ITC can be claimed by the taxpayer in any succeeding months if the details of the invoices are uploaded by the supplier. Proportionate ITC can be claimed as and when the details are uploaded by the supplier.

Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.

(The author is a CA in practice at Delhi and can be contacted at: E-mail:, Mobile: +91-9811741451)

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