In Aug 2020, a new auto-drafted statement GSTR 2B was introduced with the objective of making ITC claim and computation easier. Though invoices from GSTR 2A flow into GSTR 2B, unlike GSTR 2A, GSTR 2B is a static return. Erstwhile GSTR 2B was generated on 12th of every month, however with QRMP scheme the monthly filing date for quarterly filers became 13th. Hence GSTR-2B is now generated on 14th and consists of all those invoices file after last generated GSTR 2B.
Earlier the comparison for invoice matching was between purchase records and GSTR-2A. However, the taxpayers now have an additional choice of benchmarking their ITC computation- GSTR 2B. And with the recent tweet of CBIC around binding of Input Tax Credit to GSTR2B, there has been quite a stir in the taxpayer community.
In the recent times, we have seen Government communicating clarifications and other information via social media channels, mainly Twitter, however the legal binding of such communications raises questions. Also, GSTR 2B was introduced in the month of August 2020 to aid easier GST reconciliations and is not explicitly covered under GST Act and rules governing ITC. While some of the taxpayers are unaffected by the same as they have fallen into the practice of claiming ITC on the basis of GSTR 2B, many others are finding it difficult to take in. There are multiple ‘against’ motions:
- When the registered dealer is in possession of tax paid invoice and the supply of goods or services is complete then ITC should not be denied.
- There can be instances where the supplier has uploaded the invoice at a later date from GSTR 2B cut-off date but before GSTR-3B filing. In such cases, supplier would have discharged his liability but buyer will still be denied the ITC in the month.
- Another important aspect that has come out, is the matching of ITC for months prior to the introduction of GSTR 2B i.e. Mar’20, April’20 etc. Which document to be considered for matching of ITC for these months as GSTR 2B is available only post August 2020.
What do taxpayers prefer – 2B or Not 2B?
With all the opinions around the use of‘2B or not 2B’ for ITC claim, we thought to run a small survey with our users. More than 1200 users responded and the results are marginally tilted towards ‘Not 2B’
GSTR 2B or GSTR 2A or Purchase Register: The Trinity of ITC Computation
ITC or Input Tax Credit is an important phenomenon for business as it gets set-off against the tax liability. The more ITC claim you have, the less cash you need to pay to settle your tax liability. Traditionally, ITC was computed on the basis of purchase register. However, same has changed ever since GST has been introduced.
1. Role of GSTR 2A
After the introduction of GSTIN 2017, auto-drafted purchase statement i.e. GSTR 2A was available from GSTN system on the basis of invoices uploaded by the suppliers on the GST portal.
- GSTR 2A is a dynamic statement. Hence, in case of every late filing, the respective month’s GSTR 2A gets updated.
- Thus taxpayers need to keep tab of all the previous months GSTR 2A where their purchase register did not match and revisit computations.
Perhaps to solve this issue and provide more information on status of ITC eligibility, GSTR 2B was introduced.
2. Role of GSTR 2B
GSTR 2B is still an auto-drafted purchase statement but unlike 2A, it is static. GSTR 2B gets populated every month only for those invoices which are submitted before 14th of the month. Anything submitted post 14th find their way in next month’s GSTR 2B.
GSTR 2B, however, has different challenges.
- GSTR 2B is generated on specific date i.e. 14th and hence if reconciliation or even benchmarking is to be done, taxpayers will need to wait for 14th and less number of days will be at disposal for GSTR 3B preparation.
- While GSTR 2A is dynamic and data is available almost immediately. This provides a window for making corrections, if any, before the filing of return by vendors.
3. Role of Purchase Register
Using GSTR 2A and 2B, can provide the permissible ITC, however not everything permissible can be claimed. The purpose of goods or services, actual delivery of goods /services etc. are some rules which finally determine how much ITC be claimed and when. These details are not available in GST system, but in taxpayer’s internal systems and in purchase register.
In the initial days or even now, the ITC claim is self-declared. Gradually, Government started monitoring the self-declared ITC. And to keep the fraudulent practices at bay, stringent rules for ITC claim were introduced.
- ITC available only when the vendor files the returns i.e. the invoice is uploaded and tax liability is settled
- Cap on ITC that can be claimed on missing invoices and when returns are not filed by vendors. Current cap is at 5%.
- Restriction on full utilitisation of ITC for clearing tax liability subject to certain conditions. At least 1 % of liability to be paid in cash
As a result, the ITC computation practices of taxpayers also evolved. GST Reconciliation which was more of a once in a while activity earlier, now has become a necessary step in the return filing process.
Thus, for maximum ITC and accurate computation, all the three are necessary. From a reconciliation perspective, hence GSTR 2A is a better proposition due its real-time availability and scope of corrections. Overlaying GSTR 2B with reconciled data and ITC eligibility as per internal purchase register will be necessary for GSTR 3B computation.
Checklist to maximize ITC claim
For the benefit of our readers, we have prepared a 10 point checklist how they can maximize their ITC claim and ensure it is accurate:
1. Check if the invoice is Valid
Whenever you collect an invoice from your suppliers or vendors, ensure that it is a valid one with all the necessary details printed on it. With the e-invoice mandate is getting deeper in the taxpayer community (now 50 Cr + turnover to follow e-invoicing from 1st April 2021), you must also check if e-invoicing is applicable to your vendors. While there is no prescribed list for the same, it is advisable to take a declaration from all your vendors that can come handy for any future ITC claim complexities.
2. Check if the QR Code is Valid
For those who fall under the e-invoice mandate, expect a proper e-invoice from these vendors with IRN and QR Code printed on it. You can use IRIS Peridot to check if your vendors are preparing e-invoices and or scan the QR Code to get e-invoice details. It is important that your purchase invoice has a valid QR Code. You can read about QR Codes and B2B invoices here. The government has also mandated QR code on B2C invoices from 1st April 2021 for companies with Rs. 500 CR+ turnover. Hence, it is good to keep this info ready.
3. Check if the Invoice appears in your GSTR 2A
In a normal scenario, an invoice will have IRN on it however, you must note that if an invoice is saved again by supplier then the IRN will not be auto-populated. So, ensure that the IRN on the physical/soft copy is valid.
- If physical invoice is available with you, see if values are matching – reconcile
- If invoice is cancelled then it would not be available in GSTR 2A
Further, we also recommend the suppliers to reconcile their e-invoices with auto-populated GSTR 1 so that re-upload of data can be avoided and IRN can be retained.
4. Check if the invoice also appears in GSTR 2B
This is the most crucial aspect now considering the recent developments. While invoice generation, registering on IRP portal and printing of IRN and QR code on the invoice is a necessary step, it becomes quintessential that the supplier also uploads the invoice on government portal before 12th of the month or in other way, filed his GSTR-1 on time. The invoice data will appear in GSTR 2B only if the counter party has filed their returns. You can check with Peridot if your counterparty has filed their GST Returns and if not, you can follow up with them regarding the same.
5. Check if you are following up for missing invoices
There may be cases where you have recorded invoices in your purchase register and they are not reflected in your GSTR 2A or 2B. In such scenario, you need to follow up with vendor immediately so that the missing invoices can be uploaded on time and the vendor is reminded to file return on time. Sending emails in bulk and marking the invoices which are being followed up are some tools which can make this process efficient.
6. Check whether ITC is eligible
The invoices available in GSTR 2B reflect the data as uploaded by the supplier, which includes invoice details such as invoice number, invoice date, place of supply, invoice value and line item details such as tax rate, tax amounts. Taking GST data as benchmark for computing ITC available, the critical data points which determine eligibility of invoice for ITC purpose are
- Place of supply, only if same as taxpayers’ state then ITC on such invoice is available
- Counterparty (i.e. vendor) filing status
- If covered under reverse charge
The invoices where the PoS and Taxpayers state are same, counterparty has filed returns and it’s a forward charge transaction, implies ITC is available.
7. Check whether you can claim ITC
However, there are some additional factors which also need to be considered to identify claimable ITC out of available ITC. GST Reconciliation is necessary to ensure the data in your records and as uploaded by supplier is a match. It is also very important to ensure that the claimable amount should not become ineligible because of any of the supplier’s mistake.
For determining eligibility of claimable ITC, some additional information such as purpose of purchase (for furtherance of business or otherwise), product or service details (so as to determine if it falls in negative list for ITC), if depreciation is already claimed etc., is needed. This information is captured either at the time of recording the purchase transaction, or while period closure or preparing GST returns. Hence, the ITC computed from GST data needs to be adjusted based on these additional data fields to arrive at an accurate picture.
8. Check if provisional ITC is within limits
The rules for provisional ITC have been changing from completely self-declared ITC to a cap of 5% on provisional ITC. The rules are becoming stringent and the Government is monitoring the accuracy of claims. While some taxpayers may adopt a policy to not claim any provisional ITC, but if you do be mindful of the limits. It is good to mark such invoices and the month in which the ITC was claimed provisionally.
9. Check if ITC has already been claimed
If you are claiming ITC on provisional basis, then you need to ensure you do not claim ITC again when the invoice is actually reported by your vendor and thus starts reflecting in your GSTR 2A and 2B. The onus of identifying such invoices and adjusting ITC amount in subsequent months is on the taxpayer.
10. Check if vendor payment is done after 6 months
Invoice uploaded by vendor, shown properly in 2A and 2B and you have claimed ITC. So far so good. However if you do not pay the vendor within 6 months of the transaction, then the ITC needs to be reversed. The recently introduced communication channel on GST portal has provision for vendors to inform recipient cases where payment has not been received. While as a recipient you may receive this notification, the data also remains in GST system and hence can eventually come under the exchequers’ radar.
All the above mentioned points are in control of the recipient.
Some other aspect which can impact ITC claim is fulfilling of tax liability by supplier. Now whether supplier has declared full liability or has filed NIL, it cannot be known from the filing status. And this info is also not in public domain. However, you can use IRIS Peridot to check some trends to infer this information:
- GSTR 1 is filed but GSTR 3B is not filed
- Compliance status for overall PAN if more than one GSTIN exist.
Thus, we feel that there is a lot that goes in accurate ITC claim. GSTR 2B in the long run will only streamline as it would inculcate the habit of timely filing.
IRIS GST – Your Tool for Mastering ITC
The goal of achieving maximum and accurate ITC is challenging, yet manageable by using the right strategies and solutions. Taxpayers should carefully weigh the pros and cons and go ahead with solution or rather a GST Compliance partner who can help them to meet the objective, effectively and efficiently. Availability of ITC has a direct impact on cash outflow for the taxpayer. Hence, more the ITC available the better. Well defined internal processes and solutions to help you reconcile purchase data, can assist you in narrowing down the discrepancies and help you to maximize your ITC claim.
Courtesy to IRIS Sapphire, the preferred GST Solution of top organizations across the country, reconciliation can be easier than you think. Built-in with advanced algorithms and fuzzy logic, IRIS Sapphire helps you to reconcile all your data, with no-hassles guaranteed. It swiftly scans through your purchase and the suppliers’ sales data and points out the discrepancies. Furthermore, its smart assistance can help you to rectify the discrepancies (if any), on the go.