The new year 2022 has started with a bang in GST compliances, literally. GST Notification 39 and GST Notification 40 issued during the end of Dec 2021, specify the rules for claiming Input Tax Credit with effect from 1st Jan 2022. As per these notifications, ITC on a provisional basis cannot be claimed henceforth. Only when your vendor reports in the invoice in their GSTR 1 and files GSTR 1 on time, it shall be available for claiming ITC. 

The interrelationship of vendor compliance on ITC claim and impact of the new Notifications 39 and 40 are summarised below:

 

While the rule appears clear and simple, there are some open points and scenarios that also need to be factored in while deciding the approach for ITC. Let us look at 10 important ITC strategies for 2022 that will determine your ITC approach in the coming months:

1. Which way to go – 2A OR 2B?

GST Notification 40/2021 clearly mentioned invoices as per GSTR 2B to be considered. GSTR 2B was introduced in July 2020 and is a static statement, unlike GSTR 2A which gets updated retrospectively even in case of late filings. On the 14th of every month (or GSTR 1 filing due date whichever is later), GSTR 2B is generated. GSTR 2B includes invoices from all GSTR 1s filed between the last and current 2B generation date. Thus, GSTR 2B may have invoices belonging to the current return period as well as past periods in case of late filings.

While the ITC limit is now linked to GSTR 2B, there are some advantages of GSTR 2A that can help in maximising ITC. GSTR 2A is available near real-time i.e. as soon as invoices are uploaded by the vendor in their GSTR 1. It is important to note, with E-invoicing, the vendors’ GSTR 1 itself gets auto-populated by Government on T+2 basis (i.e. after 2 days of E-invoice generation). As a result, invoices start reflecting in GSTR 2A for the recipient. Further, GSTR 2A has invoices from all vendors, whether filed or not. This gives a window for getting any corrections made in case of issues in invoices reported and nudging the vendors to file.  

The dynamic and fluid GSTR 2A gives the benefit of starting early while the fixed GSTR 2B gives stability to reconciliation tasks. Our recommendation is to make the best use of both, GSTR 2A and 2B, for maximizing ITC.

2. Do GSTR 2A and 2B include the same information related to invoices and vendors?

Both GSTR 2A and GSTR 2B include invoices as reported by the supplier. Invoices in GSTR 2A appear as soon as those are uploaded in GSTR 1. Invoices are reported in GSTR 2B once GSTR 1 is filed by the vendor.

The core invoice data is the same in both GSTR 2A and 2B, however, there are some additional data points in these two returns. 

GSTR 2B includes ITC eligibility status for every invoice and reason if ITC is not eligible. GSTR 2A includes the cancellation status of the vendor and also if GSTR 3B has been filed by the vendor. All these additional pieces of information are useful while deciding on ITC.

3. If GSTR 1 is filed by the vendor after the due date, when will it reflect in GSTR 2A and GSTR 2B?

GSTR 2B is generated on a fixed date i.e. 14th (or GSTR 1 filing due date whichever is later). If GSTR 1 filed late for any of the previous months after the 14th, the invoices will be reflected in next month’s GSTR 2B.

GSTR 2A is directly linked to the filing period of GSTR 1. If GSTR 1 is filed late, the corresponding month’s GSTR 2A gets updated. For example, if GSTR 1 of Apr 2020 is filed in Jan 2022, then GSTR 2A of Apr 2020 get updated.

These timing differences are hence to be accounted for while claiming ITC. GSTR 2B can include invoices pertaining to current as well as previous months. The period of GSTR 3B in which the ITC is being claimed should always be later or the same as the GSTR 2B month. GSTR 2A of any month can get updated anytime. So getting updated GSTR 2A from the GST system is needed for accurate reconciliation results

4. If GSTR 2A and 2B are based on GSTR 1, does GSTR 3B compliance status of vendor matter?

The short answer is Yes.

GSTR 3B may not directly impact GSTR 2B of the recipient, however, GSTR 3B compliance directly impacts GSTR 1 of vendors themselves. As per Notification No. 35/2021, non-filing of GSTR 3B for the preceding month would result in blocking of GSTR 1. Erstwhile, GSTR 1 was blocked if GSTR 3B was not filed for two preceding months.

So,

5. When should ITC be claimed on invoices where vendors have opted for QRMP scheme?

The QRMP scheme was introduced in Jan 2021 with the objective of easing the compliance for small taxpayers (turnover up to ₹ 5 cr). If opted, GSTR 1, as well as GSTR 3B, need to be filed quarterly.

As GSTR 1 filing becomes quarterly, to enable ITC claim for recipients on monthly basis, an optional form IFF (Invoice Furnishing Facility) was introduced. Small taxpayers can choose to upload B2B invoices on monthly basis. The due date for IFF is the 13th of the subsequent month. The next day i.e. 14th, GSTR 2B gets generated that includes invoices from GSTR 1 monthly filers (filed up to 11th) and Monthly IFF from quarterly filers (filed up to 13th)

The recipient’s ITC claim is dependent on the vendor’s preference for filing monthly IFF or GSTR 1 at quarter-end. Whether or not a business has opted for quarterly filing can be known by checking the GSTIN using IRIS Peridot. If you have quarterly filing vendors, it is advisable to analyse the volume of transactions and relationships with vendors. This can provide you inputs for determining should such vendors be requested for monthly IFF or quarterly ITC is manageable.

6. Can ITC be claimed on all invoices marked as eligible in GSTR 2B?

The GST system classifies invoices as eligible and not eligible based on information reported and available in the system. Late filing and differences in place of supply can be determined using the information available with the Government system. These are used to determine the eligibility status for an invoice.

However, there are several other rules to be fulfilled to claim ITC. Non-adherence to those rules could result in incorrect ITC and hence be subject to scrutiny from Government. Section 17(5) of CGST Act specifies rules where ITC cannot be taken such as the use of goods or services for other business purposes, goods and services not received, goods or services belonging to a negative list etc.

These additional details are not available with Government and so not considered while marking invoices as eligible for ITC. It is the responsibility of the business to prudently claim the ITC. GSTR 2B does indicate an upper limit for the available ITC but computing ITC based on GST rules still needs to be done by the business

7. How ITC is to be claimed with respect to Reverse Charge transactions? 

There are two broad categories of Reverse Charge – Purchases from unregistered businesses and specified products and services purchased from registered businesses. Unregistered businesses do not file any GST Returns. Purchases from unregistered businesses, therefore, will not be in GSTR 2A or 2B. Recipients need to do self-invoicing in such cases. 

In cases of supplies from registered businesses that are covered under RCM, invoices do get reported in GSTR 1 of a vendor.  These invoices will be present in GSTR 2A and in 2B once GSTR 1 is filed.  

With respect to any RCM transactions, ITC can be claimed only after the tax has been paid by the recipient the Government. There is no dependency on GSTR 2A and 2B. 

8. Once an invoice is reflected in GSTR 2B, is it necessary to claim ITC in the same month?

GSTR 2A and 2B are prepared based on reporting done by the vendor. However, the availability of invoices in GSTR 2B is not the only condition for claiming ITC. Rules such as actual receipt of goods and services, use of goods and services.

if you have not yet received goods or services, you cannot claim ITC on such invoices till the time goods and services are actually received.  ITC claim needs to be deferred until such time. it is important to know that such was invoices will be part of GSTR 2A and 2B, when reported by the supplier and not in the month when you receive goods and services.

 You need to keep a track of invoices where ITC has been deferred and subsequently being clicked to avoid missing our ITC or double counting of ITC

9. If invoices are amended by the supplier, how does it impact the ITC claim using GSTR 2A and 2B?

After GSTR 1 is filed, any revisions thereon for invoices are reported as amendments. In GSTR 1, there are separate sections for amendment of B2B invoices, Credit and Debit notes and others. GSTR 2A and 2B also have different sections for amendments. The amended invoices do include references to the original invoice number and period in which it was reported.

Amendment can be done to revise tax amounts, correct GSTIN of the counterparty, update a place of supply and so on. These directly impact the ITC claimed in earlier months.

For ITC computation it is important to check the amended invoices section. If the amendment results in a reduction of the tax amount, then ITC if claimed earlier needs to be reversed. If the amendment results in upward movement in tax amount, then eligibility for claiming additional ITC is to be checked.

From a process perspective, it is recommended to have a track of the ITC treatment for GSTR 3B at an invoice level. Any subsequent amendments can be accounted for easily.

10. Can ITC on import transactions be claimed only after it is available in GSTR 2B? 

In the case of imports, there is no filing of GSTR 1 by the foreign supplier. The recipient pays IGST and then can be claimed as ITC. The Bill of Entry details as available in the ICEGATE system are populated in GSTR 2A and 2B. 

Most of the import transactions are reflected in GSTR 2B, there are cases where some Bill of entries are missed. At times, GSTR 2A may also not have all the import transaction details. A facility to get data from the ICEGATE system is available on the GST portal. Once the manual update is done, GSTR 2A and 2B would get updated. The return periods of GSTR 2A and 2B however could be different, depending on the date of the update being done. 

The GST rules do not explicitly mention the availability of a Bill of Entry in the GST portal is a pre-requisite for an ITC claim. However, as Government is running analytics on the data, taxpayers have been receiving notices for discrepancies in ITC claims for imports. Thus it now becomes necessary to reconcile imports as per internal records and as available in GSTR 2A and 2B. Manual update of Bill of Entries is recommended to have complete details reflected in the GST system.

With changes in ITC rules, revisiting internal controls and policies is required. In our survey regarding the implication of new ITC rules, the feedback reveals an almost equal distribution of businesses who are impacted and businesses who want to revisit their approach.

ITC maximisation along with accuracy and adherence to GST rules is one of the critical activities; not only for GST compliance but also for managing cash flow and business operations. Once internal policies and processes are taken care of, Tax-technology, managing ITC activities.

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