Amidst the lockdown, the government has been constantly trying to provide relief both by announcing stimulus and even by announcing relaxations for compliance under both direct and indirect taxes. In GST, there has been release of new notifications and Relief Measures in the past month in respect of various returns to be filed for the months of Feb 2020 to May 2020 providing some relief if filed within the extended dates.
One more very important relaxation that was provided via inserting a provision under rule 36(4) of GST Rules as under:
“Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.”
This implies that the condition of 10% provisional ITC rule will apply cumulatively for Feb to Aug 2020. And any cumulative adjustment for input tax credit for these months can be reported in 3B of Sept 2020. For details of this rule which was earlier 20% and now 10% , referour blog on 10% ITC Rule.
The usual flow of claiming Input Tax Credit in 3B is based on the amount of ITC available in GSTR 2A of the taxpayer and also based on the purchase register of the taxpayer. There are some cases where ITC cannot be claimed at all for which you can refer to our blog: Cases where Input Tax Credit cannot be claimed.
Similarly there are a few preconditions that need to be met while claiming ITC. Let us understand in detail these preconditions that you need to take care while claiming ITC:
- Taxpayer should be in possession of the tax invoice or debit note or relevant tax paying documents.
- He should have received the goods and services.
- Payment of such tax is made to the government by the vendor.
- Taxpayer has furnished return under section 39.
- Payment of invoice to the supplier should be done within 180 days from the date of issue of invoice. If payment is not done within 180 days then the ITC so availed by the recipient. (taxpayer) shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed.
- No ITC will be allowed if depreciation has been claimed on tax component of a capital goods.
- There is a time limit for claiming ITC which is earlier of Return filing due date of September of next financial year OR Actual annual return filing for current financial year.
- Where the goods or services both are used partly for business and non-business purposes, credit attributable to business purpose only can be claimed as ITC.
- Where the goods or services are used for taxable including zero rated and also for exempt supplies, in such cases credit attributable to taxable supplies including zero rated supplies only can be claimed.
For some of the above preconditions and provisional ITC calculation, it is essential to reconcile your purchase register with GSTR2A. Post reconciliation there will be invoices which
– match completely(Matched invoices),
– invoice which do not match completely(Mismatch Invoices),
– invoices present only in purchase register (Purchaser Only,) and
– invoices present only in GSTR 2A (Supplier Only).
Thus based upon the reconciliation results, there are several reports that you can consider to maximize your ITC claim.
Report 1: Invoices present only in GSTR2A
After reconciliation if the invoices are not found in the Purchase register then those can be marked as Supplier Only (or GSTR2A only) invoices. Usually the entry in the purchase register is done only when goods are actually received. Thus, there could be invoices present in your GSTR 2A however not yet present in your purchase register because goods are not received and hence you have to defer such ITC. Thus, though GSTR 2A the invoice is available for ITC claim but you cannot claim as claiming ITC depends on whether goods or services are received or not.
A screenshot from our GST Solution can help you understand the same:
Report No. 2: Compliance Status of Vendors
For all vendors in the purchaser register one should be able to know the return filing status of the vendor. Both GSTR1 and GSTR3B return filing status should be available. The basic assumption here can be made by the taxpayers that if both GSTR1 and 3B for a particular month are filed by a vendor, then the taxpayer can claim ITC for an invoice appearing in 2A for that month. This will ensure that the payment of tax precondition is fulfilled.
You can easily fetch this data in IRIS Sapphire- our GST Solution for all your vendors in a single click. PFA a snapshot of the same:
Report 3: Invoices in Purchase Register only
These are the invoices that did not match completely with the 2A or have some little mismatch. This report can be taken out counterparty-wise and then can be mailed to the vendors for their corrective action. There could be two scenarios here:
– Supplier has not uploaded your invoices while filing his return, or
– Supplier has not filed the return itself.
In both the cases you need to communicate the same with vendors to ensure that he uploads the relevant returns or the relevant invoices so that you can claim the ITC.
IRIS Sapphire offers a very good feature of vendor communication where you can directly send out these invoices to the vendors from the application itself for action. Hence, no need to download data, repeat mailers etc.
Report 4:Report on Ineligible ITC
This is the ineligible ITC as per GSTR2A based on counterparty filing status, place of supply field and reverse charge field.
As per the calculation being done in GSTR9 for ITC eligible based on GSTR 2A data, the government excludes invoices if
– CFS – N in GSTR 2A, or
– if PoS is different from taxpayer state code, or
– if reverse charge is Y
These cases are ineligible for ITC claim by the government.
Thus by this report you will come to know which are the invoices that are considered as ineligible by the government and also its reconciliation status so that you can exclude those invoices while claiming ITC even if present in your purchase register. In case where the PoS or reverse charge is incorrectly reported by the seller you can also communicate the same to the vendor.
A screenshot of invoices with CFS = N
A screenshot of invoices with GSTR 2A PoS different than the taxpayer GSTIN state code.
Report 5: Post Recon Vendor Summary
A vendor summary post reconciliation can provide you with insights at vendor level with reconciliation category wise. This will help you to focus only on those vendors which have most issues.
Report 6: Provisionally claimed invoices
Marking of invoices provisionally claimed and report based on the same.
Now that taxpayers can claim only 10% extra provisional ITC in 3B, it becomes essential for taxpayers to keep a track of those invoices on which ITC is claimed provisionally as well as those being claimed as actual along with the month in which it is claimed. This is because if such invoice claimed provisionally comes in GSTR2A later then in such case we cannot claim ITC on that invoice again in next month. Based on this marking report can be downloaded month-wise for deriving the amounts of actual and provisional ITC.
A screenshot of such report from IRIS Sapphire- our GST Software
All the above reports can be derived from the reconciliation results.
The entire process of reconciliation can be done effortlessly with our GST Solution – IRIS Sapphire. The reconciliation module of IRIS Sapphire is built to handle all these scenarios so that you get a better reconciled report on ITC claims.
The advanced reconciliation module offers strong reconciliation rules like match invoices across FY, beyond invoice number, fuzzy logic and user-defined tolerance that helps you completely match your purchase data with GSTR 2A and maximize ITC.
Schedule a Demo Today to see how IRIS Sapphire can help you in your GST Reconciliation and understand the benefits for yourself.