GST Input Tax Credit restriction amendment in Budget 2021

22 Feb, 2021 Sandeep Kumar Goyal
GST Input Tax Credit restriction amendment in Budget 2021

The stock market is in awe of the budget, the analysts are cheering, the economists are highly optimistic, the industry believes it is a transformation budget, the opposition decries and what not. These reactions are typical of any budget outcome and depending on which side of the table you are, it is either optimistic, pessimistic or at best neutral.

The Budget has come and gone and now there will be a slew of seminars explaining the impact of the budget and what is in the finer details. Many a times, these are overwhelming and too much to digest, but in this digital world, if there is one thing available in plenty, is “Information” (sometimes misinformation). Amid all these we end up either missing the woods for the trees or try to assimilate so much information that it takes time to digest and understand the implications. In this writeup, I have tried to focus on one such amendment that has been done in the budget relating to GST input credit availment, which I believe has important and significant implications on every organization and more particularly the small businesses.

Let’s try and decode what this amendment is all about. The Finance bill 2021 has inserted a new clause (aa) in sub-section (2) of the section 16 of the CGST Act. This insertion says that “input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note”. In other words, it means that now any assessee can avail input tax credit only if the supplier has filed and updated the same in its GSTR 1(statement of outward supplies). Hitherto, the assessee could have availed input credit immediately based on the invoice receipt (whether GSTR1 is filed or not by supplier). This amendment will come into force when the respective notifications will be issued by the respective authorities.

Now understand a scenario where the supplier is under quarterly filing scheme. The supplier files the GSTR 1 on a quarterly basis. This amendment restricts the recipient to take credit for a minimum period of 3 months till the supplier files the GSTR1. Or imagine a situation where the supplier has delayed filing the GSTR 1 but has provided a proper invoice to the customer. In both these situations, the person who suffers is the recipient. 
One might argue that the authorities have given option to taxpayers to choose what they have called QRMP (Quarterly Return Monthly Payment) Scheme whereby the taxpayer has the option to file Quarterly return but GSTR 1 must be filed monthly. But this is, first optional and second cumbersome for small assesses as the data of invoices must be furnished monthly. Some may also say that the recipient organizations are already following a practice of paying tax on invoices only after receiving the input credit. But imagine the invisible cost of compliance in absence of a tech-based solution.

This amendment in the statute will in my opinion drive towards:

  • Making small suppliers unattractive, unless they opt for QRMP. 
  • Cost of compliance for small taxpayers/suppliers will go up.
  • Reconciliation of Input tax credit will have to be given utmost importance, thereby resulting in payment delays to small taxpayers.
  • Essential need for a tech-based solution for achieving this reconciliation and tracking.

The original proposed idea of the GST was to have a complete GST input reconciliation mechanism, whereby the input credits are matched monthly through GSTR 1 and GSTR 2 finally resulting in GSTR 3. This is nothing but a back door entry for this mechanism. Taxpayers have now to choose efficient supplier ecosystem who are well equipped to handle this. An ideal solution for a medium and large enterprise will be to have a single tech-based solution eco-system wherein it is interconnected with its suppliers and will be able to handhold them in this journey. 




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