One such change has been recently notified by the government vide Notification No. 14/2022 – Central Tax dated July 5, 2022, in Table 4 of GSTR 3B, meant for Input Tax Credit (ITC) related information. The said changes have been made available on the GST portal since September 1, 2022. In brief, the government has majorly changed the following two aspects :
- Mandatory reporting of reversals on account of ineligible ITC in Table 4(B)(1) which are permanent in nature and are not reclaimable, for e.g., blocked credits under section 17(5), reversals under Rule 42 & 43 on account of exempt supplies, etc.
- Reporting of ITC reversals not permanent in nature in Table 4(B)(2) and reclaim the same in Table 4(A)(5) with specific reporting of the said information in Table 4(D)(1) as well [this is a new Table inserted now]. This will include ITC reversals on account of non-payment to vendor within 180 days, reversal of ITC appearing in GSTR 2B but not accounted in books, etc.
The above two changes in reporting of reversals of ITC in accordance with the GST provisions were required earlier as well. However, the changes were not so explicitly followed by the majority of taxpayers and only eligible ITC or ITC available and ITC-reversed was being captured in GSTR 3B. Such changes will bring in more clarity in reporting by taxpayers and will help investigators reconcile the figures of GSTR 3B with the books for better tax administration.
Also, there are definite objectives of the government behind making these changes such as – (a) to auto-populate and co-relate the information of GSTR 3B with GSTR 2B, and that of GSTR 9 with GSTR 3B; and (b) to ensure uniformity in the practice followed in reporting ineligible ITC as well as various reversals of ITC in GSTR 3B. However, this has now elevated the complexity involved in filing of GSTR 3B which was supposed to be a ‘summary return’ at the time of its implementation. Basis our discussions with certain clients at different scales and our own experience in assisting such clients in their regular compliance, we have delineated certain challenges attributable to these changes below:
Non-accounting of ineligible ITC under section 17(5) separately in ERP –
In most companies, the accounting process of vendor invoices is structured in such a manner that the GST amount, which is ineligible for ITC, is not recorded separately rather the entire transaction amount is booked in the expense GL itself. Thus, it is difficult to extract a report of ineligible ITC booked during a period. In light of the recent amendment, companies will have to restructure the said process and have a separate GL/report for ineligible ITC, but this should include a lot of configurations in their respective ERP system(s) as well in their AP process, which is both time consuming and comes with a cost.
True up/true down in the reversals made under Rule 42 at year end –
Under Rule 42, sub-rule (2) provides for re-computation of reversal of ITC on account of exempt supplies at year-end basis the turnover of entire financial year and requires the taxpayer to either reverse the deficit ITC amount not reversed earlier or to avail the ITC amount reversed in excess in monthly returns. In that way, the reversals made on monthly basis under Rule 42 may not be called as absolute, and the taxpayer may require to reclaim the same at a later stage. However, it seems that the government has missed to acknowledge this provision and define the mechanism for making the said adjustments. A clarity on this aspect can be expected soon. Similarly, if there is any inadvertent mistake in reporting of information in Table 4(B)(1), there is no mechanism explicitly provided for correction of the same.
Requirement to reconcile all transactions of GSTR 2B, including ineligible ITC –
As per the clarification issued vide Circular No. 170/02/2022-GST dated July 6, 2022, it is evident that a taxpayer is required to report the information in Table 4(A) as auto-populated in GSTR 2B of the said month. This will entail reconciling all the line items of GSTR 2B, including the ineligible ITC and reconcile with the purchase register of the said month. This will be important for being able to report correct information in Table 4(B) in terms of ITC reversals and to ensure that the “Net ITC availed” amount in Table 4(C) reconciles with the ITC amount as per books. There is no doubt that this will increase the burden of compliance on the taxpayers, especially for the companies –
- Not having the data of ineligible ITC readily available from their ERP;
- Using manual option to reconcile their eligible ITC with GSTR 2B due to limited quantum of data; and
- Having only exempt supplies (such as companies involved in generation & sale of electricity) and are not eligible for any ITC, but since the numbers of ITC will still auto-populate from GSTR 2B, they will have to reconcile the same and ensure making reversals of the same.
Non-consideration of reversals [Table 4(B)] by tax department while issuing notices on ITC reconciliation –
These days, the taxpayers are frequently receiving notices from the tax department for variance in the amount of ITC availment in GSTR 3B as compared to their respective GSTR 2A/2B. Certain key observations from most of these notices (across various states) are that the department doesn’t consider the amount of reversals being made by the taxpayer in Table 4(B) and the amount of GSTR 2A/2B considered are different from the amounts actually available on the GST portal. Owing to this, there have been several instances where the taxpayers have received notice for ITC which it has already reversed in GSTR 3B of the same month. Considering the changes, we expect that there will be further increase in the instances of such defective notices being received by the taxpayers, thereby over burdening the taxpayer with more compliance related work.
While the intention of the government is to curb tax leakage and to drive it digitally, they also need to consider making the GST filing process more economical and user friendly, rather than making it a complex and affluent process, which would require robust technology and back-end support of trained professionals as this inclination towards correlating myriad reporting requirements and auto-population of various categories of data segments, have muddled the overall working atmosphere for taxpayers.
(Gulzar Didwania is Partner with Deloitte India; Punita Bhuchar Rana is Director with Deloitte Haskins and Sells LLP and Subham Saraf is Manager with Deloitte Haskins and Sells LLP.)