Claiming more than 105% ITC as reflected in GSTR 2A may casue notice for reversal or cancellation of registration.

 If you claim the ITC in the GSTR 3B return for an amount that exceeds the prescribed limit as laid down in Rule 36 (4).

 

Prescribed Limit for ITC availment as per Rule 36(4)

Do you know that the Govt. has altered Rule 36(4) of CGST Rules 2017 and decreased the maximum limit to claim Input Tax Credit to 105% as per what is shown in GSTR 2A.

Initially, this limit was 120%, which was reduced to 110% and now finally to 105%. 

Chronology tabulated as under-

With Effect From

Limit on ITC Availment

09/10/2019

120%

26/12/2019

110%

01/01/2021

105%

 

Consequences of claiming ITC in excess of the prescribed limit

If the ITC claimed is more than 105%, the Officer can initiate the cancellation of registration proceedings as per Rule 21(e) of CGST Rules 2017 or may issue Mismatch Notice.

 

Know the difference between Rule 21(e) and Rule 21A(2A)



Although, this case is relatively better than the proceeding initiated in Rule 21A(2A) of CGST Rules 2017 on account of mismatch in Data as you are issued a Show-Cause Notice and given a chance to explain the reason for claiming more than 105% ITC.

 

So, 

The GST department had made a lot of changes in operations and new ways of analyzing Businesses.

In this Email, we talk about the second Fact / Consequence of claiming more ITC than what is available in the system.

 

What can /should I do?

A lot of problems can arise due to this change by the Govt., sometimes even when you are availing the eligible amount of ITC.

As per our years of experience and dealing with hundreds of cases related to ITC problems, these are the main points that you should keep in mind at all times:

  1. Make sure to maintain the back-calculation sheet along with reconciling party-wise and invoice-wise records. This will help you to know the amount that you can avail at all times and avoid mistakes.
  2. Make sure that you consider only the eligible amounts for availing ITC. Eligible amount is the amount which is reflected in GSTR 2A having GSTR 1 Return Filing Date and allowable to claim as ITC.
  3. There are cases when you will have leftover ITC left from previous months. If you are availing ITC including the amount of earlier months, the total amount can exceed 105% in most cases. If you are availing more than 105%, make sure to intimate the Jurisdictional Superintendent in advance (via written intimation).

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