Key Changes relating to GST Input Tax Credit proposed in the Union Budget 2022

The Budget 2022 was presented by the Hon’ble Finance Minister on February 1^st, 2022 and several amendments under GST laws were proposed through the Finance Bill, 2022. The key changes relating to Input Tax Credit (ITC) are discussed hereunder:

1. 1. New Restriction on availment of ITC – Introduction of Section 16(2)(ba)
   2. Extension in time limit to avail input tax credit u/s 16(4)
   3. Levy of interest at 18% on excess Claim of ITC- Retrospective amendment
   4. No interest on mere wrongly ITC availment
   5. Other Changes

1. New Restriction on availment of ITC – Introduction of Section 16(2)(ba)

Section 16(2) of the CGST Act provides certain conditions on fulfilment of which the registered person would be entitled to claim ITC of GST charged on the inward supply of goods or services or both. The conditions include possession of the relevant document, payment of tax, furnishing of returns, etc.

The Finance Bill 2022 has proposed an amendment in the above provision to provide a new condition for availing the ITC.

It has been provided that ITC on invoice or debit note can be availed only when the details of such input tax credit in respect of said invoice/debit note have not been restricted in the GSTR-2B.

Consequent to this proposed amendment, the registered person would be eligible to claim the ITC only when the details of invoices/debit notes made available to him electronically on the GSTN Portal are not restricted in the auto-generated statement referred to as GSTR-2B.

2. Extension in time limit to avail input tax credit u/s 16(4)

Section 16(4) of the CGST Act, 2017 provides for the time limit to avail ITC of GST charged on the inward supply of goods or services or both. It was provided that a registered person can avail ITC in respect of invoices or debit notes up to the earlier of the following dates:

• • Due date of furnishing the return under section 39 for the month of September following the end of the financial year to which such invoice/debit note pertains, or
  • Furnishing of the relevant Annual Return

An amendment has been proposed via Finance Bill 2022 in order to extend the time for availing input tax credit by a registered person in respect of invoices or debit notes pertaining to the relevant financial year.

It has been proposed that a registered person can now availITC in respect of invoices or debit notes up to the earlier of the following dates:

• • 30^th November following the end of the financial year to which such invoice/debit note pertains, or
  • Furnishing of the relevant Annual Return

As a result of this amendment, the registered person will get more time to avail ITC of GST charged on the invoices/debit note in respect of the inward supply of goods or services or both.

3. Levy of interest at 18% on excess Claim of ITC- Retrospective amendment

A retrospective amendment (with effect from July 01, 2017) has been proposed for levying interest on ITC wrongly availed and utilized. The interest on such ITC would be 18%p.a. (instead of 24% p.a.). This proposed amendment seems to be in line with the judgement of Hon’ble Madras High Court in case of  F1 Auto Components Private Limited vs. State Tax officer, Chennai [2021] 128 taxmann.com 342 (Madras).

4. No interest on mere wrongly ITC availment

The Finance Bill, 2022 proposed to retrospectively substitute Section 50(3) to provide for levy of interest only in cases where input tax credit has been wrongly availed and utilised.

Section 50(3) provides for levy of interest on undue or excess claim of input tax credit. The provision does not create any distinction between ‘ITC merely availed’ and ‘ITC availed and utilized’. The Finance Bill 2022 proposed that interest would get attracted only if ITC is wrongly availed and utilised against payment of output liabilities. Interest would not be payable if ITC is merely wrongly availed and retained in the electronic credit ledger.

5. Other Changes

The Finance Bill, 2022 has proposed to substitute Section 38. In terms of proposed amendment, the Form GSTR-2B would provide the details of supplies where ITC would be available and where ITC cannot be availed. The proposed provision has provided various scenarios where ITC can be restricted (such as where there is a default in payment of tax or filing of returns and such default is continued for a period to be prescribed, mismatch in tax liability of GSTR-1 and GSTB-3B). Further, it has been provided that the recipient cannot avail ITC in these cases.

Also, the concept of provisional ITC has been proposed to be removed as the matching of returns would no more be there. The ITC taken in the electronic credit ledger would be a final ITC of the registered person. Further, the proposed provision also provides that where the supplier has not paid the tax, the recipient would be required to reverse the ITC of the same along with the interest. The ITC can be re-availed once the supplier pays the tax.