Input Tax Credit Restricted up to 120% Reflected in GSTR-2A

The New GST Rule:

A new GST Rule has been inserted as Rule 36(4) in the CGST Act, 2017 by the central government in the Goods and Services Tax regime. The rule states that “The Input Tax Credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 20 per cent. of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37”.

Requirements in the New GST Rule:

The conditions under Section 16 and Section 17 of the CGST Act, 2017 read with Rule 36 of the CGST Rules, 2017 must be satisfied by the eligible Input Tax Credit. Also, the new GST Rule states the admissible ITC will be 120% of the input credit reflected in Form GSTR-2A for the month or the available eligible ITC in the account books, the one which is lower, to simplify the process further.

Implementation of the New GST Rule:

According to the new GST Rule, simple and easy monthly based computation is to be done by the taxpayers. The steps are as follows-

  • As per the books, finalize the Input Tax Credit: The taxpayers as per the new GST Rule must ensure the eligibility and ineligibility of the work or exercises to be performed. They must also ensure that based on the physical invoices only, the receipt of goods and services and accounting is taking place. Also, ensuring that the maintained ITC register must have all the headings including the name and GSTIN of the vendor, type of ITC, date with original invoice references, details of the HSN, POS, taxes, GST tax rate and bill of entry or Self-invoice or Cn/DN or invoice.
  • As per GSTR-2A, finalize the eligible Input Tax Credit: By 12th of the subsequent month GSTR-2A must be downloaded by the taxpayer from the GSTN Portal. The applicant must take a copy of the same for future references. Invoices on which RCM is applicable must be removed. Invoices that does not pertain to the inward supplies and invoices that have been received from the ISD through GSTR-6 must also be removed. The pending invoices not satisfying eligibility conditions of the ITC under Section 16 read with the rules must be kept uploaded as well. Provide the amendment invoices. Perform the exercise to find the eligibility or ineligibility of the invoices that are remained. And for the month consider the 120% of the eligible invoices as the maximum ITC limit that can be availed through GSTR-3B.
  • For the month, in GSTR-3B apply for Rule 36(4) and the appropriate credit claimed by the taxpayer: As per the new GST Rule, compute the total of the 120% ITC as per GSTR-2A against the one in the books. Claim the ITC having the lower value in GSTR-3B.

Challenges faced by the New GST Rule:

Certain challenges and problems that the new GST rules are facing are as below-

  • Violating the recipient’s rights: The new amendment injures the substantive rights of the recipients of supplies and violates the law blatantly due to the non-implementation of the GSTR-2.
  • The differentia is unreasonable and arbitrary: The new GST Rule also violates the Article 14 and 19 of the Constitution of India by creating a very un-intelligent and arbitrary difference between the people whose vendors have uploaded the supplies on time and to those whose vendors have not yet uploaded the supplies.
  • The rules are disguise of excessive power of the legislative: Without any notification the Central Government has introduced the new GST Rule and the restriction in rule 36(4) making its power and function usurping.
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or