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Indirect Tax Alert: Restriction on claim of ITC and usage of ECL

24 December 2020

ITC restriction under Rule 36(4) of CGST Rules, 2017 and restriction on use of amount available in electronic ledger under Rule 86B of CGST Rules, 2017

ITC restriction under Rule 36(4):

The input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished in Form GSTR 1 or using the Invoice Furnish Facility (IFF) by suppliers shall not exceed 5% of the eligible credit available in respective of invoices or debit notes, the details of which have been furnished in GSTR 1 or IFF. Earlier the restriction was limited to 20% vide notification no: 49/2019 Central Tax dated 9 October 2019, which was subsequently revised to 10% vide notification no: 75/2019 Central Tax dated 26 December 2019.

It should be noted that the total credit cannot exceed the tax amount as reflected in the total invoices for the supplies received by the taxpayer i.e. the maximum credit available in terms of provisions of section 16 of the CGST Act, 2017

Restriction on use of amount available in Electronic credit ledger under Rule 86B of CGST Rules, 2017:

In case if a registered person has taxable supply other than exempt supply and zero rated supply in a month exceeds 5mn, he shall be restricted to utilise amount available in electronic credit ledger to discharge his output tax in excess of 99% i.e. 1% needs to be paid in cash.

The said restriction shall not apply where:

  • The key managerial persons of the respective “person” as defined in CGST Act 2017 have paid more than one lakh rupees as Income Tax in each of the last two financial years for which the time limit to file return under Income tax has been expired.
  • The registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit in case of zero-rated supply made without payment of tax or in case of inverted duty structure.
  • If a registered person discharged output tax via cash in excess of one percent of total output tax liability applied cumulatively, up
  • to said month in the current financial year.
  • The registered person is:
    • Government department;
    • A PSU;
    • A local authority;
    • A statutory body;

However, the Commissioner or an officer authorised by him in this behalf may remove the said restriction, after such verification and safeguards, as he may deem fit.

   [Notification no:94/2020-Central tax dated 22 December 2020]