Last month in order to eliminate misuse of ITC or input tax credit, the government has placed a limit on the claim amount for input tax credit for entities with annual turnover of less than Rs. 5 crore. And further, the rule change states that the tax can be claimed fully only when all the related invoices are uploaded by the suppliers in their GSTR 1.
The rule however does not augurs well for MSMEs as they are required to file GSTR1 only once in 3 months and those who procure from these firms will have supply invoices quarterly and would not be able to claim credit in the next payment cycle for the supply.
As per the new rule, ITC on invoices which are not uploaded by suppliers in their GSTR-1 (which does not reflect GSTR-2A of recipient), can be availed to the extent of 20% of ITC which is reflecting in GSTR-2A of the recipient in respect of other invoices. For example, if a taxpayers claims ITC of Rs 10 lakh but can only show uploaded invoices worth, say, Rs 5 lakh, the firm can claim a maximum credit of Rs 6 lakh (Rs 5 lakh for which invoices uploaded plus 20% of 5 lakh for missing invoices).
"MSME law mandates payment within 45 days to MSME vendors, whereas GST law is enforcing deferral of tax credit on procurement made from such vendors who are filing quarterly GST returns. This double jeopardy is forcing the corporate to circumvent all smaller vendors in order to avoid working capital issues," Rajat Mohan, senior partner at AMRG & Associates said.