Accounts payable

NOTICE: GST input tax credit changes effective January 1 – Questions to ask your supplier, how to protect your ITC and more

The new year 2022 will bring a significant change in the way of availing oneself Input tax credit (CTI) by taxpayers under the Goods and Services Tax Act. The additional condition of benefiting from the ITC by the recipient of the goods / services introduced by the Finance law, 2021 entered into force on January 1, 2022.

With the upcoming change, the ITC on an invoice / debit note can only be used by a recipient when the details of that invoice / debit note have been provided by the supplier in their outbound supplies (GSTR-1) and that these details have been communicated to the recipient of this invoice in form GSTR-2B.

Basically, a buyer will not get credit for the tax paid if the supplier does not upload the invoice and file the returns on the GST timely portal.

Henceforth, the taxpayer will not obtain the benefit of taking advantage of a provisional ITC of 5% as permitted by the aforementioned rule.

Implications of the change on companies

One of the main rigors of the above amendment is that it will increase the dependency of recipients on their suppliers for the use of any ITCs on their supplies.

Unless suppliers report their supplies on the GST portal appropriately and the same is visible in their self-written GSTR-2B, the ITC on those supplies will not be available to the recipient even though the other conditions of the ITC have been duly completed.

This implies a dual responsibility for taxpayers, one to ensure the accuracy of their own compliances and the second to ensure the correct compliance of their suppliers as well. And if they don’t do the same, it will be them who will lose their legitimate ITC because of the fault of their suppliers.

How can companies protect their ITC now? Supplier agreements.

With such draconian provisions introduced into the GST, it is imperative that businesses protect themselves by including such strict and unwavering clauses in their agreements with suppliers that will protect them from any loss incurred by them due to the failure of a part of the supplier to download invoices. or incorrect uploading of invoices for supplies made to consignee under GSTR-1 or due to any other technical defect and authorize them to offset or recover the same from such defaulting suppliers.

Civil actions in case of disagreement

Unless strict clauses are incorporated into agreements with suppliers, it will be difficult for recipients to claim a remedy under GST law in the event that such a loss is incurred by them due to failure to do so. conformity of supplies.

Therefore, the last legal recourse available to them will be to pursue a civil debt collection action, which in itself is a lengthy process.

Improving internal processes will be key to ensuring ITC is not lost

In order to avoid such complexities, companies should proactively create internal processes for relevant stakeholders, such as accounts payable team, tax team, finance team, etc. to ensure that legitimate JTIs are not lost.

For example, the accounts payable team should ensure that payment for an invoice is not made unless it is available on the GST portal. Likewise, the tax team should ensure that no ITCs are taken from an invoice unless it appears on the GST portal, as this could result in the ITC being refused later.

Other Practical Solutions to Ensure Businesses Don’t Lose ITCs

Reconciliations from time to time from data available on the portal before taking the ITC, rigorous follow-up with suppliers for the timely reporting of their invoices, email communications with suppliers in the event of non-reporting or incorrect declaration, withholding of payments from non-compliant suppliers, etc. are some of the practical solutions that can be implemented by businesses on their side to secure legitimate ITCs without affecting the cash flow of the business.

Final remarks

In conclusion, it will not be incorrect to state that having such restrictive provisions is absolutely contrary to the intention behind the introduction of the GST regime, which was to eliminate the cascading effect of taxes that existed under the old regime and allow the free flow of credit.

There is no doubt the government needs to tackle false billing, but in doing so, it should not harass bona fide taxpayers by increasing the compliance burden on them.

Note: This is an opinion piece by CA Tushar Aggarwal, Founding Partner of Tattvam Advisors and CA Geetika Shrivastava, Executive Partner of Tattvam Advisors.


Here’s how to get the GST credit if your supplier hasn’t uploaded invoices

Can you claim an input tax credit on CSR spending ⁠— three authorities have two different decisions

Cloud kitchens are restaurants, ice cream is not food and other important clarifications that will affect GST rates