GST – Restriction on Input Tax Credit (ITC) availment on a Self-Assessment Basis

  • 18th, March 2020
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As per GST the term “assessment” means the determination of tax liability, the types of assessment in GST are shown below:

The current amalgamated tax – GST encourages self-assessment by the registered taxable person like previous taxes (Excise duty, Value added tax, and Service tax).  “Self-Assessment”, as the name signifies, is a process whereby every registered taxable person does self-assessment, pays the tax and files the returns by furnishing details of how the tax amount arrived.

Current ITC Availment by Self-Assessment:

A new Rule 36(4) inserted vide the Central Goods and Services Tax (Sixth Amendment) Rules, 2019 and also through subsequent amendments, wherein it was provided that, every registered person can claim provisional Input Tax Credit (“ITC”) in GSTR-3B only to the extent of 10% of the ITC reflected in GSTR-2A with effect from 01/01/2020.(was earlier restricted to 20% for the period from 09/10/2019 – 31/12/2019)).

With effect from 01/01/2020, the calculation for the amount of ITC reported in GSTR-3B will be total of actual ITC in GSTR-2A and provisional ITC (being 10% of actual ITC reflected in GSTR-2A), less ineligible ITC.  This ITC cap of 10% shall not be applied on IGST paid on imports, reverse charge mechanism and credit transferred through Input Service Distributor.

Consequent to the above amendment, the onus of proof lies on the registered person to ensure that they do not claim more than 10% of the eligible ITC with respect to the invoices which have not been uploaded by the suppliers/service providers.  Thus, any ITC claimed in excess of the prescribed limit may be liable for interest and penalty with respect to such excess availment.

Existing ITC Availment by Self-Assessment:

Prior to ITC restriction, the registered person, who are maintaining the required documents as provided in Sec 16(1)(a) of CGST Act read with Rule 36 of CGST Rules, were utilizing the total amount of ITC for a particular tax period against the GST liability on a self-assessment basis, in spite of the fact that the supplier has not uploaded their sales in GSTR 1 or has not paid the GST amount collected from the Vendors towards the purchase of goods or receipt of Service.

Impact due to introduction of ITC restriction:

The amendment has introduced another set of compliances on a Monthly basis apart from existing compliance, as below;

  • Verification on the credit claimed shall not exceed GSTR 2A by 10 % (was earlier 20% from 09/10/2019 – 31/12/2019).
  • Frequent Reconciliation of purchase data between books and the GSTR-2A before & after return filling, as the figures in GSTR 2A, is dynamic.
  • Meticulous follow-up with suppliers/vendors for the invoices which are not getting reflected in GSTR -2A.
  • Determining the credit which is ‘eligible’ out of the GSTR 2A before applying this 10% rule in order to avoid the risk of paying Interest and Penalty (if any), on such excess claimed as well as Ineligible ITC.
  • Huge Impact on working capital and cash flow for every business because ITC available as per books would not be equal to the ITC claimed in that taxable period, thereby causing an increase in the tax outgo.
  • The stringent selection process of suppliers based on their Return filing statistics.
  • Deferred realization of ITC credit, if the suppliers/vendors who are falling under quarterly return filing.



The applicability of the aforesaid amendment on ITC restriction is dubious, due to the fact that there is no provision that enables this restriction, even though the restriction on the ITC claim effected through Section 43A of the CGST Act, 2017 which was introduced on 01/02/2019  without notifying the effective date. Besides, ITC being an invincible right of a registered person, minor procedural lapse or technical omissions or default in filing of return and payment of taxes by the supplier should not hinder the tax payer’s business or impact their cash flow.

It’s also pertinent to note that, the restriction on 20% availment of the Input Tax Credit amendment has been challenged in The High Court of Gujarat at Ahmedabad by M/s. Society for Tax analysis and Research (Special Civil Application.No.19529 of 2019), the matter is still pending in the said court ( Next Listing Date: 29/04/2020).

Similarly Hon’ble Delhi High Court in Bharti Telemedia Ltd Vs. Union of India & Ors. [W.P.(C) 6293/2019] has observed that Credit cannot be denied to the recipient for the default on the part of the taxpayer and has also issued notice to Union of India calling for justification for Sec 16(2)(c) and Sec 16(4) of CGST Act which is violative to Article 14 of the Constitution of India.  But still, now the outcome of this case is not known (Next Listing Date: 20/07/2020).

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