Restriction on Availability of Unmatched ITC

Restriction on Availability of Unmatched ITC

In a recent notification no. 49/2019-CT dated 9th October 2019, CBIC has inserted sub-rule (4) in section 36 of the Central Goods and Services Tax Rules, 2017. Through this amendment, a restriction has been imposed on the taxpayers for availing Input Tax Credit (ITC). As per the notification the taxpayer will be able to take credit of the unmatched ITC only up to 20% of the ITC reflected in GSTR-2A.

Rule 36(4):

Rule 36(4) has been inserted in the CGST Rules, 2017 which provides that:

  • Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in their GSTR-1 under section 37(1), shall not exceed 20 per cent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under section 37(1).
  • Effectively ITC shall not exceed 20% of the eligible credit reflected in GSTR-2A.

Upload-Lock-Pay System:

  • Earlier the GST council with the intent to simplify and reduce the compliance burden on the taxpayers, had proposed to introduce a simplified GST return form, which was expected to be implemented from April 2019 (now deferred till April 2020).
  • The proposed simplified return would primarily have two tables, one for reporting outward supplies and other for getting input-tax credit based on invoices uploaded by the supplier.
  • The invoices can be uploaded continuously by the seller and these can be continuously viewed and locked by the buyer for availing ITC.
  • This entire process is referred as ‘Upload-Lock-Pay’.

Section 43A:

  • To give effect to the simplified GST Returns, government had introduced section 43A in the Central Goods and Services Tax Act, through Central Goods and Services Tax (Amendment) Act, 2018.
  • Section 43A covers two major points as follows:
    • Procedure for filing of GST Return.
    • Procedure for Availment of Input Tax Credit.
  • Section 43A operationalizes the new GST return procedures. The detailed guidelines in rules are yet to be notified. It is expected that these rules would be issued in due course so that the exact details would be available to taxpayers well in advance.
  • Section 43A intends to reemphasis the concept of availability of ITC based on matching concept i.e. reconciliation of ITC reported by supplier and buyer.
  • Section 43A restricts availability of unmatched credit claimed by recipient to the extent of not more than 20 per cent of the ITC available to the recipient.

The relevant provision is reproduced as under:

“(4) The procedure for availing input tax credit in respect of outward supplies not furnished under sub-section (3) shall be such as may be prescribed and such procedure may include the maximum amount of the input tax credit which can be so availed, not exceeding twenty per cent of the input tax credit available, on the basis of details furnished by the suppliers under the said sub-section.”


Post the aforementioned notification, various questions have cropped up in the minds of the taxpayers:

  • For which period the restriction apply, i.e. whether the same would apply for September 2019 returns or for October 2019 returns?
  • Whether the same would apply even for FY 2018-19 credits?
  • Does rule 36(4) which is effective from 9th October 2019, can be implemented without section 43A becoming effective.

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