Can we claim ITC on 5% GST rate?

Demystifying ITC Claims Under the 5% GST Rate: No More Provisional Claims

The landscape of Input Tax Credit (ITC) claims under GST has undergone significant changes. Previously, businesses could claim a provisional ITC of up to 5% even if the corresponding invoices weren’t reflected in their GSTR-2A. This provision, under CGST Rule 36(4), allowed for a degree of flexibility, particularly when dealing with supplier delays or discrepancies in uploading invoices. However, this leniency is a thing of the past.

Effective January 2022, the rules tightened considerably. The 5% provisional ITC claim has been eliminated, meaning businesses can no longer rely on this safety net. Now, ITC claims are strictly linked to the details furnished in the GSTR-2B. This statement, concise as it is, has substantial implications for businesses of all sizes.

GSTR-2B is an auto-drafted statement reflecting the ITC available to a registered taxpayer. It’s essentially a read-only summary of inward supplies, compiled from the supplier’s GSTR-1, GSTR-5, and ICEGATE data. The crucial point is this: if an invoice doesn’t appear in your GSTR-2B, you cannot claim ITC against it, regardless of the GST rate. This includes invoices subject to the 5% GST rate, often applicable to certain goods and services.

The rationale behind this change is to enhance transparency and accuracy in the GST system. By tying ITC claims directly to GSTR-2B, the government aims to curb fraudulent claims and ensure that ITC is availed only for genuine transactions.

This shift necessitates a more proactive approach from businesses. Reconciling your purchase register with GSTR-2B regularly is paramount. Early identification of discrepancies is crucial to avoid ITC claim rejections. Here’s what businesses need to do:

• Regular Reconciliation: Compare your purchase records with GSTR-2B on a frequent basis, preferably monthly.
• Communicate with Suppliers: Immediately follow up with suppliers if invoices are missing or incorrect in GSTR-2B.
• Maintain meticulous records: Ensure all purchase invoices are accurately recorded and readily accessible.
• Leverage technology: Consider using automated reconciliation tools to streamline the process and identify discrepancies efficiently.

The elimination of the 5% provisional ITC claim underlines the growing importance of meticulous record-keeping and proactive communication with suppliers. While it may seem more stringent, this change ultimately contributes to a more robust and transparent GST ecosystem. By adapting to these new norms, businesses can ensure compliance and avoid potential financial repercussions.