New input tax credit availment condition imposed vide Finance Act, 2022

The registered taxable person, in order to avail of the input tax credit, needs to satisfy several conditions as laid down under provisions of section 16(2) of the Central Goods and Services Tax Act, 2017. Recently, the Finance Act, 2022 has inserted one additional condition which the registered taxable person needs to comply with in order to avail of the input tax credit. Notably, the inserted new condition is right now puzzling a lot to the trade and industry. It is important to note here that the Finance Act, 2022 has got the presidential assent on 30

th March 2022. However, the effective date of the additional input tax credit condition is not yet notified. The present article briefly explains the new inserted input tax credit availment conditions and consequences thereof.

Current position of input tax credit availment condition –

Before understanding the new condition, it is important to go through the current position of the input tax credit availment which is explained hereunder. The recipient prior to availing of the input tax credit needs to satisfy the following five conditions. Notably, earlier there were only four conditions. However, the fifth condition was later on introduced and made effective from 1

st January 2022.

Condition 1 – As covered under section 16(2)(a) –

The recipient of goods or services or both should possess a relevant tax invoice or debit note or any other tax paying document as issued by the supplier.

Condition 2 – As covered under section 16(2)(b) –

The recipient should have received the relevant goods or services or both. However, in case the goods or services are delivered/ supplied to any other person on the direction of the recipient. Then, it will be deemed to have been received by the recipient.

Condition 3 – As covered under section 16(2)(c) –

The supplier should have actually paid the relevant tax, charged on the supply of goods or services, to the Government. Such GST tax payment can be made by the supplier either via an electronic cash ledger or electronic credit ledger.

Condition 4 – As covered under section 16(2)(d) –

The registered person should have furnished the return in Form GSTR-3B as per section 39 of the Central Goods and Services Tax Act, 2017.

Condition 5 – As covered under section 16(2)(aa) – effective from 1st January 2022

The supplier should have furnished the details of the relevant invoice/ debit note in the statement of outward supplies i.e., Form GSTR-1. Further, such details should have been communicated to the recipient in auto-generated statement in Form GSTR-2B.

Position of input tax credit availment condition post Finance Act, 2022 –

Vide clause 100 of the Finance Act, 2022, the sixth condition for availment of the input tax credit was inserted. The sixth condition, as covered under section 16(2)(ba), states that details of the input tax credit as communicated via Form GSTR-2B should not be restricted under section 38. Correspondingly, vide clause 104 of the Finance Act, 2022, provisions of section 38 of the Central Goods and Services Tax Act, 2017 are also entirely substituted via Finance Act, 2022. Accordingly, new provisions mean as under –

As per section 38(1), the detail of outward supplies furnished by the supplier in Form GSTR-1 will be made available to the recipient in Form GSTR-2B subject to prescribed conditions and restrictions; and
As per section 38(2), Form GSTR-2B will consist of the following two parts –

Parts	Details thereof
Part 1 covering available input tax credit	Details of inward supplies in respect of which input tax credit is available to the recipient.
Part 2 covering restricted input tax credit	Details of supplies in respect of which input tax credit is restricted due to any of the following reasons – · The supply is undertaken by the supplier within the prescribed period of obtaining GST registration; · The supplier has defaulted in tax payment for a continuous prescribed period; · The output tax payable as per Form GSTR-1 filed by the supplier is more than the output tax paid as per Form GSTR-3B as per the prescribed limit; · The registered person has availed input tax credit in Form GSTR-3B in excess of input tax credit reflected in Form GSTR-2B as per the prescribed limit; · The registered person has defaulted in discharging the tax liability; · The supplier belongs to the prescribed class of person.

Here, it is important to note that as stated under section 38(2), the Government has yet not prescribed the limit, period and class of person. Further, both the above mentioned clause i.e. clause 100 and clause 104 will come into force as and when the Central Government specifies the date via issuing a notification. After going through the above provisions, it is pretty clear that availment of input tax credit by the recipient is not going to be easy in future days. The availment is going to rely more on the continuous and accurate compliance by the supplier. If the supplier either defaults in complying or completely don’t comply with the provisions of the GST Act and rules made thereunder, the input tax credit will be restricted in the hands of the recipient.

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Frequently Asked Questions

Common questions about New Input Tax Credit Availment Condition Under Finance Act.

The new condition introduced by the Finance Act, 2022 for availing input tax credit is that the details of the input tax credit as communicated via Form GSTR-2B should not be restricted under section 38. This means that if any part of the input tax credit is reflected in the restricted section of Form GSTR-2B, the recipient may not be able to avail that portion of the input tax credit.

The new condition for availing input tax credit will become effective once the Central Government notifies the date through an official notification. The Finance Act, 2022, which introduced this condition, received presidential assent on March 30, 2022, but the effective date is yet to be notified.

According to the new provisions, input tax credit may be restricted and reflected in Part 2 of Form GSTR-2B due to reasons such as the supplier undertaking the supply within a prescribed period of obtaining GST registration, the supplier defaulting in tax payment for a continuous prescribed period, or the supplier belonging to a prescribed class of persons. However, the specific limits, periods, and classes are yet to be prescribed by the government.

The new condition will make the input tax credit availment process more dependent on the continuous and accurate compliance by the supplier. If the supplier defaults or does not comply with the provisions of the GST Act and rules, the input tax credit for the recipient may be restricted, even if the recipient has fulfilled all other conditions.

Before the new condition, recipients need to satisfy five conditions to avail input tax credit: (1) possess a valid tax invoice or document, (2) receive the goods or services, (3) ensure the supplier has paid the tax, (4) file Form GSTR-3B, and (5) ensure the supplier has furnished the invoice details in Form GSTR-1, communicated in Form GSTR-2B.

Under the new provisions, Form GSTR-2B will consist of two parts: Part 1 covering available input tax credit and Part 2 covering restricted input tax credit. The restricted section will include details of supplies where input tax credit is restricted due to reasons like the supplier's default or belonging to a prescribed class.

The details of outward supplies furnished by the supplier in Form GSTR-1 will be made available to the recipient in Form GSTR-2B, subject to prescribed conditions and restrictions. The accuracy and timely filing of Form GSTR-1 by the supplier will now directly impact the recipient's ability to avail input tax credit.

The existing condition requires the supplier to furnish the invoice details in Form GSTR-1, which should be communicated to the recipient in Form GSTR-2B. The new condition builds upon this by restricting input tax credit if the details in Form GSTR-2B are marked as restricted due to the supplier's non-compliance or other prescribed reasons.

The substitution of section 38 by the Finance Act, 2022, introduces the concept of restricted input tax credit in Form GSTR-2B. It outlines the reasons for which input tax credit may be restricted and made available to the recipient in two separate parts of Form GSTR-2B – available and restricted.

To ensure uninterrupted input tax credit availment, recipients may need to closely monitor the compliance status of their suppliers. They should ensure that their suppliers are regularly filing accurate returns, paying taxes on time, and not defaulting or falling under any prescribed categories that may lead to input tax credit restriction for the recipient.