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Input Tax Credit under GST- Checklist To Maximize Your ITC Claim In 2021

by | May 10, 2021 | Update

Input Tax Credit under GST is the right of every GST paying taxpayer.

Claiming the eligible Input Tax Credit in the right way has always been challenging on some fronts.

With the ever-changing GST compliances, the misinformation among the laymen taxpayers has created a lot of confusion in the taxpayers’ minds about ITC under GST.

ITC is undoubtedly one of the essential parts of the GST structure, and claiming this ITC is necessary to keep the working capital flowing for a business.

This article will shed some light on some tips you need to keep in mind when you claim your eligible GST Input Tax Credits.

3 Important Pillars of Input Tax Credit Under GST

Whenever we talk about Input Tax Credit Under GST, three important entities are most important for claiming maximum Input Tax Credit.

  1. GSTR-2A
  2. GSTR-2B
  3. Purchase Register

We will see the significance of every entity, one by one.

  1. What is GSTR-2A?

    • GSTR-2A is auto-generated every month.
    • GSTR-2A is a purchase-related tax return & is generated by the GST portal for every registered business.
    • GSTR-2A of the Recipient is generated based on the GSTR-1, GSTR-5, GSTR-6, GSTR-7 & GSTR-8 of the Supplier.
    • GSTR 2A is a dynamic statement. The GSTR-2A gets updated every month.
    • The taxpayers are required to keep a check on all the preceding months’ GSTR-2A.

To ease the process for taxpayers and provide a more transparent way for claiming eligible Input Tax Credit, GSTR-2B was introduced under GST.

  1. What is GSTR-2B?

    • The recipient generates GSTR-2B every month based on the GSTR-1 returns filed by his Suppliers.
    • To find your eligible Input Tax Credit for the month, GSTR-2B can be considered as a standard document.
    • Recently, even the CBIC has clarified that the recipient’s GSTR-2B will be considered for claiming the eligible Input Tax Credit under GST.
    • GSTR-2B is generated on the 12th of every month.
    • GSTR-2B remains static, unlike the GSTR-2A.

  1. Purchase Register

    • GSTR-2B vs., Purchase data reconciliation is an inevitable part of claiming the Input Tax Credit under GST.
    • Every single purchase detail maintained by the recipient in his ERP or any other billing software helps him match his data with the GSTR-2A of GSTR-2B and claim only the eligible Input Tax Credit under GST.
    • Hence, the Purchase register is the third most important pillar in the Input Tax Credit claiming process under GST.
    • GST Reconciliation has become necessary as the GST structure is becoming transparent day by day.
    • To keep the fraudulent ITC claims at bay, the reconciliation must be accurate, and all the supporting details to your claim should be available.

In the later part of the article, we will provide you with a checklist that will help you maximize your Input Tax Credit Claim and protect you from any further tax disputes. Claiming ineligible ITC can attract unwanted tax probes and legal proceedings as well.

Essential Checklist before you claim Input Tax Credit Under GST

We are listing down some crucial check-points that every taxpayer should follow while claiming maximum Input Tax Credit under GST.

  1. Checking the validity of the invoices

    • This is the primary caution that every taxpayer should take. When a recipient collects an invoice from his supplier or vendor, it is the primary responsibility of the concerned taxpayer that he verifies the details printed on the invoice.
    • It is also advisable that the taxpayer checks if his supplier is eligible for e-Invoicing under GST.

  1. Checking the validity of the QR Code

    • QR Code is the new face of e-Invoicing. It is an important entity for an e-Invoice as it provides authenticity to the document.
    • When you are in business with a supplier eligible for e-Invoicing, make sure that you validate the e-Invoices you obtain from your vendor.
    • All your purchase invoices are expected to have a valid QR code embedded in them.

  1. Check your GSTR-2A for the invoice details

    • GSTR-2A is auto-generated by the GST portal. It contains all the purchase-related entries for the preceding month.
    • You must check the invoices you get from your vendors and match those with the entries in the GSTR-2A.
    • This GSTR-2A reconciliation task is vital as it avoids other possible errors in the tax calculation.
    • If the vendor cancels the invoice, this invoice data will NOT be available in the recipient’s GSTR-2A.

  1. Check your GSTR-2B for the invoice details

    • Recently, GSTR-2B has become the critical factor for the Input Tax Credit in GST.
    • GSTR-2B is considered the final and standard document to claim your eligible ITC.
    • It is advised that the taxpayers check their GSTR-2B for any discrepancies before claiming Input Tax Credit.
    • Invoice details of your purchases will appear in your GSTR-2B if and only if your suppliers have filed their GSTR-1 on time and accurately.
    • Hence, this step is an essential one as this will give you a final confirmation about the amount of eligible ITC you can claim for a particular month.

  1. Follow-up with defaulting vendors

    • As discussed in the above section, it is quintessential that your supplier files his GSTR-1 accurately and on time.
    • Failure of your supplier to file his GSTR-1 returns can negatively impact your Input Tax Credit and also block your working capital for business.
    • If you identify any missing invoices present in your purchase records but are absent in your GSTR-2A or 2B, you should immediately follow up with the respective supplier.
    • Informing the defaulting supplier will help file the returns, and you shall claim the ITC in the next month for that missing invoice (in case the due date is over).

  1. Checking the limit for Provisional Input Tax Credit under GST

    • Currently, the permissible provisional ITC limit is fixed to 5% of the total eligible ITC.
    • You should make sure that you do not claim more than the fixed mark.

NOTE: Provisional ITC allowed as per Rule 36 (4) is limited to 5% of the total eligible Input Tax Credit available as per GSTR-2A of the Recipient

    • Some of the taxpayers are not used to avail the provisional ITC. However, whenever you claim provisional ITC, you should mark such invoices for future references.

  1. Pay your vendor within six months

    • It is advised that you settle all your pending payments to your suppliers within six months from the transaction
    • If you haven’t paid your supplier in the said time, then the ITC claimed by you has to be reversed.
    • Instead of waiting for further consequences, it is ideal that the recipient pays his supplier well before the deadline.
    • With the recent development in the GST portal, the recipient who has delayed his payment to the supplier can be notified. This notification will be sent to you via the GST system, which can cause a problem for you in the future as the GST system has this data.