GST – Process of matching of Input Tax Credit (ITC)

India is now ready for the GST implementation from 1st July 2017. GST in India is more unique than all other countries. Dual tax administration has been introduced under GST, keeping in mind of the federal tax system by the Indian constitution. IGST Concept on an interstate supply of goods and services has been introduced and a requirement of matching the input tax credit has been set as a most important procedure under GST Act, as it is difficult to track and invoice with input tax credit. Under the GST Act, apart of transferring the goods, there should be an actual passover of ITC (Input Tax Credit). This process will ensure that ITC can be only claimed if it has been confirmed by the counter party. The concept of matching ITC (input tax credit) has been introduced from Existing VAT Laws. ITC Can be only claimed if invoice of supplier  and recipient is matched. This is also invoice matching under GST

Following details/returns have to be furnished with goods or services, the following details need to be furnished as per the advisory from the GST Council.

GST Return form Responsible party Required declaration
GSTR-1 Supplier (Seller) Invoice wise details of outward supply
GSTR-2A Auto-populated from GSTR-1 Auto-populated based on supplier return
GSTR-2 Recipient In this form recipient can add or delete Input tax credit item
GSTR-1A Auto-populated by Supplier The supplier can amend or can add delete outward tax item as per the goods or services received by the recipient
GSTR-3 Supplier and recipient Matching of ITC only after due date of furnishing the return GSTR-1 & GSTR-2

  • Process of Matching ITC (Input Tax Credit)

After online submission of GSTR-3, the common portal will verify the GSTIN of the supplier, GSTIN of the recipient, invoice number or debit note number, invoice date or debit note date, the taxable value of supply goods or services, and the tax amount (separate details for CGST, IGST & SGST).

 The claim of ITC would be deemed as matched in the following case:

  • In respect of debit and invoices in a form which is accepted by the recipient on the basis of GSTR-2A without any amendment. The corresponding supplier will submit valid return.
  • When the recipient of goods or services has claimed the exact or less than the output tax of the supplier.
  • What is a meaning of the discrepancies in ITC under GST?

Discrepancies in ITC may be communicated by the recipient in GST MIS-1 when the ITC claim is in excess than the tax amount declared by the supplier or supplier has failed to declare the supply made to the recipient, and discrepancies in ITC can be reported by the supplier in GST MIS-2 if there is duplication in claim by the recipient.

  • How to rectify the discrepancies in a claim of ITC (Input tax credit)?

The rectification of the discrepancies can be either done by the supplier by filing correct outward returns and matching with goods or services received by the Recipient or Recipient on his own motion. The discrepancies may be deleted or correct the details of an outward supply matching with an outward supply can be made by the supplier.

  • Increase in GST Liability of the recipient if the discrepancies in ITC have not been sorted out by the Supplier.

If after communication by the recipient about the discrepancies in ITC, the supplier does not initiate any correction in such circumstances or the ITC amount extends to such discrepancies, it should be added to the output tax liability of the recipient. The additional tax liability along with interest will be applicable at the time of filing of GSTR-3.

  • A decrease in the tax liability of the recipient

The recipient output tax liability may be reduced when the supplier admits the invoice or debit note is claimed in the monthly return within the specified time period. When there is an admission of the tax liability by the supplier, then the recipient shall be entitled to a refund of excess tax paid along with interest. Interest will be added by the GST Department on account of a supplier.

GST – Point of Taxation

In today’s article, we will discuss the point of taxation. We all know about taxable events i.e. any event, the occurrence of which results in the liability to pay tax. Under previous laws of indirect tax laws, manufacture, sales, provision of services etc. were known as taxable events. However, under GST all these events are summed up in the definition of supply. Taxable event under GST will include any supply of any goods and services or both in course for the furtherance of a business.

Another concept to be clarified is regarding ‘point of taxation’, we know what taxable event is, but the point in the course of this transaction where these goods or services are to be taxed is known as the point of taxation.

Chapter IV of  CGST Act,2017 states the norms relating to the point of supply. It clearly specifies that the liability to pay tax on goods as well as on services arises at the time of supply.

Now the important thing is to determine what is ‘time of supply’. Section 12 and Section13 define what time of supply is in reference to goods and services respectively.

Time of supply for goods (Section 12)

First, let’s discuss time of supply of goods. Section 12 of the Act states the following provisions regarding the determination of time of supply;

Here, the criteria is that earlier of the following will be considered at the time of supply:

  1. Date when the invoice is issued, or the last day on which supplier is required to issue the invoice.
  2. Date on which the supplier received the payment. Here this date will be the earlier of the following: the date on which entry regarding this payment is entered in the books of accounts, date on which entry regarding this payment is entered in the books of accounts, date on which payment amount is credited from his account.

In case of Reverse Charge

The second discussion is regarding goods on which tax is paid or is liable to be paid on reverse charge basis. In such cases, time of supply will be earliest of the following:

  • Date on which goods are received.
  • Date of payment, it will be the earlier of the following:

When such payment is entered in the books of accounts of the recipient.

When the bank account of the recipient is debited with the payment amount.

  • Date immediately following 30 days from the date of issue of invoice or any other document issued in lieu of it by the supplier.

If it can’t be determined based on these given dates, then the date of entry of supply in the books of accounts of the recipient will be considered as the time of supply. 

In case of voucher

If any person is engaged in the supply of vouchers, then they have different criteria regarding the determination of the time of supply as they are different in nature as compared to other goods. These criteria are:

– Date when these vouchers are issued, if it possible to identify them, or

– Date of redemption of such vouchers.

Time of supply for Services (Section 13)

In case of services, time of supply is to be determined based on the following conditions;

Time of supply will be the earliest of the following:

  • Date when the invoice is issued or date of receipt of payment, whichever is earlier
  • If the invoice is not issued within prescribed period, then the date of provision of services or date of receipt of payment, whichever is earlier

Here this date will be the earlier of the following:

– Date on which the entry regarding this payment is entered in the books of accounts of the supplier.

– Date on which payment amount is credited to his account.

  • In case of point 1 and 2 don’t apply, date of receipt of services shown in the books of accounts of the recipient.

In case of reverse charge

In the case of supply of services on which the tax is paid or is liable to be paid on the reverse charge basis, the time of supply will be the earliest of the following:

  • Date of payment, it will be the earlier of the following:

When the bank account of the recipient is debited with the payment amount.

When such payment is entered in the books of accounts of the recipient.

  • Date immediately following 60 days from the date of issue of invoice or any other document issued in lieu of it by the supplier.

If it can’t be determined based on these given dates, then the date of entry of supply in the books of accounts of the recipient will be considered as the time of supply.

However if such supply of services is affected by any associated enterprise located outside India, then the time of supply will either be the date of entry of supply in the books of the accounts of the recipient or the date of payment, whichever is earlier.

In case of vouchers

Here time of supply is determined in exactly the same way as it was done in the case of goods. The following dates will be considered as the date of supply:

– Date when these vouchers are issued, if it’s possible to identify them, or

– Date of redemption of such vouchers.

In the case of non-determination of such time of supply of goods or services based on the criteria discussed in the given headings, the following dates can be considered as the time of supply:

– If the supplier is liable to periodical returns, then such is the date of filing.

– In any other case, date of payment of taxes.

In Case of Increase in the Value of Supply of Goods or Services

If there is any increase in the value of supply, then the given principles are to be followed in order to determine the time of supply. Such increase in the value of supply can be because of any two reasons:

  1. If such increase is a result of interest on the principal amount, late fee or penalty, then the date of supply will be the date on which such addition is received by suppliers.
  2. If the supplier receives any amount more than 1000 rupees in excess of the amount indicated on the invoice. Here the supplier has a choice to fix the time of supply for such excess amount as the date of issue of the invoice in respect of such amount.

GST – Initial Return Filing under GSTR 3B

In this article, we will discuss return filed in GSTR-3B, but first, we will try to understand what are the returns that are required to be filed in general course of business. In the normal course of business taxpayers are required to file:

  • For monthly filing in forms GSTR-1, GSTR-2, GSTR-3, GSTR-5, GSTR-6, GSTR-7, GSTR-8, GSTR-11.
  • For quarterly return filing, GSTR-4 is needed,
  • For annual return filing Form GSTR-9 required and
  • Form GSTR-10 is required to be filed as the final return in case of surrender or cancellation of registration.

To gain detailed insights about returns to be filed under GST and their due dates, you can refer to our previous articles on our website.

As with anything new, GST will also have its share of issues and problems in the initial stages. And it would be difficult for the taxpayers to file timely returns that are required to be filed under GST, for the simple reason of unfamiliarity with the procedures. There are many other reasons which make it difficult for taxpayers to file timely compliances, like these returns ask for GSTIN No the taxpayer, any many taxpayers are still not registered under the Act.

In order to ensure the smooth rollout of GST and after considering the recommendations of the key industry players, time limits for furnishing the Returns under GST are extended. After the Council meeting held on Sunday 18th June 2017, Arun Jaitly announced that return filing timelines under GST are to be relaxed and extended up to September.

Relaxations and Extension Granted

Decisions are taken in this council meeting state that for the first two months i.e. for the month of July and August a simplified tax return is to be filed in Form GSTR-3B, containing the summary of Inward and Outward supplies. This form is required to be filed on 20th of the next month.

What is Form GSTR-3B?

Sub-rule 5 of Rule 64 of CGST Rules, specify the provisions relating to Form GSTR-3B. Section 37 and 38 specify the due dates for furnishing details in GSTR-1 and GSTR-2 respectively. These relevant dates are 10th and 15th of every month. This rule states that if the time limit for furnishing these details has been extended and circumstances so warrant, then return is to be filed in GSTR-3B in lieu of GSTR-3 (monthly return) as per the conditions as specified by the Commissioner.

After the extended period when GSTR-1, GSTR-2 and GSTR-3 will be filled, GSTR-3 will be auto populated with the information furnished in the two previous forms. If there are any differences between the information filed in GSTR-3 and GSTR-3B, then such difference will be refunded or paid, as the case may be. However, the taxpayer won’t be liable to pay any interest, late fee or penalty for such excess amount.

Extensions granted for filing these monthly returns

The government has granted extensions for monthly returns that are required to be filed. These returns include:

  • GSTR-1 : For details regarding outward supply.
  • GSTR-2 : For details regarding inward supply.
  • GSTR-3 : it is a monthly return required to be filed.

These extensions are only given for the months of July and August. While 25 days extension is given for the month of July, only 10 days extension is given for the month of August. To understand it more clearly about what will be the due dates of filing of different forms after such extension refers to the table given below.

GSTR-1 GSTR-2 GSTR-3
JULY
Actual Date 10th August 15th August 20th August
Extended Date (+25 days) 5th September 10th September 15th September
AUGUST
Actual Date 10th September 15th September 20th September
Extended Date (+10 days) 20th September 25th September 30th September

This table clearly shows the actual and extended dates for filing of these returns. However, on the other hand, Form GSTR-3B is required to be filed on 20th of the next month. It means that GSTR-3B for the month of July and August will be filed on 20th August and 20th September respectively.

GST – Notified MRP Rules

There has been a lot of confusion in the minds of the retailers and consumer as to what will be the price of goods immediately after the implementation of GST. Will they pay the Maximum Retail Price printed on the product or the revised price if there is any change in the price of such given product?

As it is not possible to change the packing of every product which shows its price overnight with the implementation of GST. This is also a point of worry for the manufacturers and distributors who hold a large amount of stocks in their storage units.

MRP Rules

The government has addressed all these concerns of the stakeholders and consumers, and notified rules regarding MRP (Maximum Retail Price) on Tuesday, 4th July 2017. This notification clearly states the rules to be followed in case of any changes in the price of the product.

Following MRP rules are specified under the notification:

  • Both old, as well as the new revised MRP, must be shown on the packing of that particular product.
  • If there is any increase in the MRP of any product the manufacturer/ importer/ packer must give a newspaper advertisement in two newspapers about such change in the price of their product. And put a sticker or print the updated MRP on the packaging.
  • On the other hand, if there is any decrease in the MRP of any product no advertisement is required to be published. However, they are required to print or place a sticker on the packaging stating the price of the product.

Extension Period

The government is well aware of the worries of manufacturers and distributors, who have a lot of products lying in their storages. As it will take a long period of time to clear those stocks, the government has provided them with an extension period of three months starting from GST implementation date i.e. 1st July 2017 and ending on 30th September 2017. During this period they are not required to repackage their products stating the revised MRP as packaging also constitutes to a considerable amount of the cost of the product. They can just state the revised prices on their packaging along with the old price of such product. However, this relaxation will not be available after the expiry of this started 3 months period on 30th September 2017.

Legal Action

Now let us discuss what will happen if there is any noncompliance on the part of the manufacturers, packers or suppliers. Food and Consumer Affairs Minister Ram Vilas Paswan tweeted on the evening of 4th of July 2017 that if provisions regarding revised MRP as stated in the rules are not properly followed, then legal action will be taken against such shopkeeper. We can say that proper reflection of changes in the price is mandatory, failing which, dealers will be liable to pay penalty imposed on them by the authorities.

Steps Taken to Ensure Proper Implementation

The government is taking all the necessary steps to make sure that GST implementation is a smooth process. The government has formed a Central Monitoring Committee which is assigned with the task of monitoring price and supply situation post-GST implementation in the economy. This committee is required to meet every Tuesday to for relevant discussions.

Along with this government is taking every step possible to educate the stakeholder as well as the citizens about the GST law. In this process, they are conducting one hour long GST master class for 6 consecutive days which will be broadcasted on Doordarshan and will be available on the net as well.