• Notification Date: 10-01-2022
  • Notification No: N/A

Corporate Cash Flow will be Massively Affected by the GST Tax Credit Changes

New rules have been introduced by the government since Jan 1. This new provision under the Goods and Services Tax has made the matching of input tax credit more complicated for the taxpayers.

The suppliers are now responsible for reporting the returns of supplies and their communication with the recipients. This new provision introduced under Section 16 has made the condition of the recipient taxpayers terrible. The taxpayers are suffering due to the lack of an organized credit-matching facility. Instead of automatic matching of the credit on the GST portal as promised in 2017, the government has made it the responsibility of the taxpayers to match the input tax credit.

Rule 36 (4) in Central Goods and Services Tax Rules, 2017 restricted ITC to a percentage of matched invoices. This made the taxpayers match the credits to match manually. But subsequently, this percentage reduced from 20% to 5%. Though denied to follow the rule introduced under 36 (4), the taxpayers continued to follow it to ensure credits and to avoid any hazards related to interests, and penalties.

In November 2020, the government introduced GSTR-2B on the portal. This was available a day after the due date of furnishing GSTR-1 and contained all the details of ITC invoices of suppliers. The government provided a detailed advisory reporting the credit using GSTR-2B. The option of GSTR-2A was also kept intact on the portal. The taxpayers received a massive amount of demand notices for ITC taken in GSTR-3B. The amount exceeds that in GSTR-2B.

This new amendment is estimated to negatively affect the corporate cash flow massively. The taxpayers will also face difficulties in receiving credit based on invoices. GSTR-2B under rule 36 (4) is creating nightmarish experiences for the taxpayers. In case there is a delay in the entry by the vendor after receiving the GST amount, or if there is no entry by the vendor in GSTR-2B, the credit taken by the recipient will ultimately get reversed to a bottom-line loss. If the credit is not returned by the taxpayers, then they are likely to receive demand notices from the taxpayers. The taxpayers will be charged with reversal of credit, interest and penalty.