Home Tax News Rising complications for corporates in ITC claims under GST

Rising complications for corporates in ITC claims under GST

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Rising complications for corporates in ITC claims under GST

Input Tax Credit (ITC) claims have been stressing out many businesses due to the large efforts involved. The government has been making amendments of late to the GST law to tighten the ITC claims, the most recent being through Budget 2023.

Changes in ITC from Budget 2023

You have seen and adapted to the present filing system, where no provisional ITC claims are allowed. The recently passed Finance Bill 2023 made some further changes in the GST provisions to keep it in line with the current system of restricted ITC claims as per the GSTR-2B. For instance, Section 54 of the CGST Act on provisional GST refunds removed reference to deducting any provisional ITC claimed from the accumulated ITC refund amount in case of zero-rated supplies.

Further, Budget 2023 disallowed you from claiming any input tax credit against high sea sales and the sale of warehoused goods before clearance for home consumption. These transactions fall under para 8(a) of Schedule III (neither supply of goods nor services), needing no GST payment. Accordingly, you cannot claim ITC on inputs or input services used for such sales, which is ensured by an amendment of Section 17(3) of the CGST Act.

Additionally, any GST you pay on Corporate Social Responsibility (CSR) expenses will not be eligible for ITC, as Section 17(5) of the CGST Act has been revised. The government is yet to notify all these amendments made in the Finance Bill 2023, but they impact certain sections of taxpayers adversely by narrowing the scope of lawful ITC claims.

Moreover, Section 16 was amended with the condition that in cases where a recipient does not pay the invoice value, including the GST, to their supplier within 180 days from the date the invoice has been issued, they will pay back such ITC claimed along with interest under section 50.

Significant ITC changes in the recent past and their impact The most significant development in ITC provisions that has directly hit the ITC claim process of many Indian businesses has been removing provisional ITC claims. You can claim ITC, which appears in GSTR-2B as eligible.

These frequent changes in the GST law put added pressure on businesses to track the latest changes in the law and be compliant in the shortest possible time.

The changes in ITC rules have added responsibilities on businesses to reconcile and communicate with vendors more often. Businesses must take up reconciliations regularly throughout the month and instantly convey any misreporting, omissions or delays in ITC reporting to their respective sellers. In turn, this has led them to take additional steps to secure ITC reporting, such as GST payment blocking while releasing invoice payments. Further, they need to automate the task of classifying ITC as eligible and ineligible for reporting in GSTR-3B.

Rising ITC complexities & how modern technology automates claims to benefit businesses

Many GST-registered businesses continue using conventional and manual methods to reconcile data or communicate with vendors. They may not be able to achieve full ITC claims with such manual systems in place.

Technology has progressed in leaps and bounds such that you can get multiple options for data import and handling these days. Moreover, you must get sanity checks or run validations at source while importing the GST data from various sources such as ERP and GSTN. It prevents or reduces the occurrence of errors at later stages of reconciliation or filing on the government’s GST portal.

Defining advanced custom logic for reconciling the GSTR-2B with the books of accounts helps you achieve higher and better-suggested matches, reducing your team’s efforts and time manifold. They can define the logic only once and keep it running until any major change occurs in their business process.

AI helps users take bulk actions such as multiple selections, sorting, and communicating with multiple non-compliant vendors for ITC reporting. You can save time and effort and achieve the maximum ITC claims to appear in GSTR-2B before the GSTR-3B filing date.

These days, auto-blocking the payment of GST in the invoice to vendors helps businesses tactically solve working capital gaps through effortless coordination with the accounts payable teams.

Ultimately, advanced technology can potentially bridge the gaps in ITC claims more effectively for Indian businesses.

(The author is the founder & CEO at Clear, or formerly ClearTax)

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