In order to nudge taxpayers to timely file their statement of outward supplies (GSTR-1), restrictions on availing of input tax credit (ITC) by the recipients was imposed by inserting Rule 36(4) of the CGST Rules,2017 vide Notification No. 49/2019 Central Tax, dated 09-10-2019 and since then it has witnessed several amendments.
As per the said Rule, the input tax credit availed by a registered person in each tax period for which return (GSTR-3B) is being filed shall comprise of eligible credit as uploaded by supplier in its GSTR 1 (statement of outward supply) / IFF (under QRMP Scheme) which is then auto-populated in the GSTR 2A / GSTR 2B of the recipient.
Further, in regard to invoices not uploaded by suppliers and thus not reflected in GSTR 2A / 2B of the recipient, such recipient can at maximum avail input tax credit upto 20% (from 09.10.2019 to 31.12.2019) , 10% ( 01.01.2020 to 31.12.2020) and 5% (from 01.01.2021 onwards) of eligible credit as uploaded by supplier and reflected in its GSTR 2A / 2B. Needless to mention here that we are discussing about invoices of B2B supplies here, as anyways B2C supplies are made to ultimate consumers which being not GST registered are not eligible to take input tax credit.
It is pertinent to mention here that Rule 36(4) has been subject to much debate and challenged in several Courts stating it to be unconstitutional. Recently a notice in this regard has been issued to Govt. by Gujarat High Court.
However, it seems the life of Rule 36(4) is shortlived and once the new sub-clause (aa) to Section 16(2) as inserted by Section 109 of the Finance Act, 2021 is enforced, Rule 36(4) will be scrapped and ITC of taxpayers will be restricted to eligible ITC as per GSTR-2B without any grace. However, whenever such provision is enforced, it is also expected to witness litigation and will be subject to judicial scrutiny.
Latest Relief in regard to Rule 36(4) accorded by GST Council
Considering Corona 2nd Wave, the GST Council in its 43rd Meeting held on 28th May, 2021 has provided relaxation in form of cumulative application of rule 36(4) for availing ITC for tax periods April, May and June, 2021 in the return for the period June, 2021.
Accordingly Rule 36(4) will not apply while filing of returns (GSTR-3B) for the period April and May, 2021 and will be applicable on a cumulative basis for these months, while filing of said return for June, 2021.
Earlier CBIC Clarification on the cumulative application of Rule 36(4)
It may be noted that earlier also we have witnessed such relaxation of Rule 36(4) wherein for applying of restriction of Rule 36(4) for period February to August 2020 in the GSTR-3B of September 2020. At that time considering the doubts of the taxpayers the CBIC vide Circular No. F. No. CBIC / 20 / 06/14/2020-GST dated 09.10.2020 had provided clarification relating to the application of rule 36(4) of the CGST Rules, 2017 for the months of February 2020 to August 2020.
The highlights of the Clarification as rewrited for the cumulative application in June 2021 is as under:
- The clarifications issued earlier vide Circular No. 123/42/2019 – GST dated 11.11.2019 shall still remain applicable, except for the cumulative application as prescribed in proviso to sub-rule (4) of rule 36 of the CGST Rules. Accordingly, all the taxpayers are advised to ascertain the details of invoices uploaded by their suppliers in GSTR-1 / IFF for the periods of April and May, 2021, as reflected in the respective GSTR-2B for these months.
- Taxpayers shall reconcile the ITC availed in their FORM GSTR-3Bs for the period April and May 2021 with the details of invoices uploaded by their suppliers of the said months, till the due date of furnishing FORM GSTR-1 / IFF for the month of June 2021. The cumulative amount of ITC availed for the said months in FORM GSTR-3B should not exceed 105% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37 of the CGST Act / IFF.
- Availability of 105% of the cumulative value of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1 / IFF does not mean that the total credit can exceed the tax amount as reflected in the total invoices for the supplies received by the taxpayer i.e. the maximum credit available in terms of provisions of section 16 of the CGST Act.
- The excess ITC availed arising out of reconciliation during this period, if any, shall be required to be reversed in Table 4(B)(2) of FORM GSTR-3B, for the month of June, 2021. Failure to reverse such excess availed ITC on account of cumulative application of sub-rule (4) of rule 36 of the CGST Rules would be treated as availment of ineligible ITC during the month of June, 2021.
- While applying restriction the restriction under Rule 36(4) would be computed cumulatively for period April and May, 2021 and the restriction for month of June, 2021 shall be computed separately.
Calculation of cumulative restriction of Input Tax Credit in GSTR-3B of June,2021
Let us understand the computation of cumulative restriction with help of Illustrations:
Illustration 1:
Compute the claim for ITC in the month of June, 2021 after applying cumulative restriction under Rule 36(4) of the CGST Rules, 2017:
| Description | Amount in Rs. |
| Eligible ITC as per Books of Accounts for the period April and May,2021. | 15,00,000 |
| Eligible ITC for the month of June, 2021 | 5,00,000 |
| Total ITC as per books of Accounts (April to June, 2021) | 20,00,000 |
| Eligible ITC on GST Portal as per GSTR 2B for months April to June, 2021* | 15,00,000 |
| Add: Restriction as per Rule 36(4) (5% of Eligible ITC appearing in GSTR-2B) | 75,000 |
| Total ITC that can availed for period April to June, 2021 as per Rule 36(4) | 15,75,000 |
| Full eligible ITC as per books already claimed in April and May 2021 without following Rule 36(4) | 15,00,000 |
| ITC which can be availed in GSTR-3B for the month of June, 2021 Rs 15,75,000 Minus Rs 15,00,000) (ITC for remaining amount of Rs. 4,25,000 will be claimed as and when suppliers file GSTR-1 / IFF relating to invoices of Rs. 4,04,762/- (Rs 4,25,000 / 1.05) in future months) | 75,000 |
Illustration 2:
Compute the claim for ITC in the month of June, 2021 after applying cumulative restriction under Rule 36(4) of the CGST Rules, 2017:
| Description | Amount in Rs. |
| Eligible ITC as per Books of Accounts for the period April and May,2021. | 15,00,000 |
| Eligible ITC for the month of June, 2021 | 5,00,000 |
| Total ITC as per books of Accounts (April to June, 2021) | 20,00,000 |
| Eligible ITC on GST Portal as per GSTR 2B for months April to June, 2021* | 10,00,000 |
| Add: Restriction as per Rule 36(4) (5% of Eligible ITC appearing in GSTR-2B) | 50,000 |
| Total ITC that can availed for period April to June 2021 as per Rule 36(4) | 10,50,000 |
| Full eligible ITC as per books already claimed in April and May 2021 without following Rule 36(4) | 15,00,000 |
| Reversal of ITC required in GSTR-3B for the month of June 2021 (without interest) (Rs 10,50,000 Minus Rs 15,00,000) in Table 4(B)(2) of FORM GSTR-3B (ITC for balance amount of Rs. 9,50,000 has to be claimed as and when suppliers file GSTR-1 / IFF relating to invoices of Rs. 9,04,762/- (Rs 9,50,000 / 1.05) in future months. | (-)4,50,000 |
*GSTR 2B being a static document may contain the invoices for earlier months also. We need to segregate the invoices of earlier months and do the above computations taking invoices for April, May and June only. The ITC for earlier year invoices now depicted in GSTR-2B of current months may be taken separately. However, it should be ensured that the ITC availed earlier (i.e. 1.05 of eligible ITC appeared in earlier GSTR-2B) and ITC being now availed on the basis of earlier period invoice appearing in current GSTR-2B does not exceed total eligible credit as per books for that month.
The restriction on 5% provisional credit is not supplier-wise and is linked to the total eligible ITC from all suppliers based on details uploaded in the GSTR-2B.
Apart from the ITC, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. provided that other eligibility conditions for availment of ITC are met in respect of the same.
Concluding Remarks
The Corona relief for deferment in the application of Rule 36(4) of the CGST Rules, 2017 is temporary and cumulative computation of the restriction is required to be made in the GSTR-3B of the month of June,2021.
It is advisable that in order to be safe from rigors of Rule 36(4), the recipients should ensure that they should do a reconciliation of their GSTR-2B with the books and identify the invoices , whose credit is not reflected in GSTR-2B.
They should then follow up with such suppliers to file their GSTR 1 / IFF and deposit the consequential tax well within time. Such follow up may be made starting from suppliers from which bulk supplies are received and GST paid is high. This will keep the restriction of ITC at bay as technically in case invoices totaling 95.23% of the eligible ITC amount for a month are uploaded by suppliers/ reflected in GSTR 2B, the recipient will be able to avail the entire eligible ITC for that particular month.
Also Read: e-Invoicing Under GST | Steps To Download QR Code Verification Application
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CA. Mohammad Salim is an ICAI award winning Chartered Accountant having rich experience of more than 20 years in the field of indirect taxes. He is the Member, Indirect Taxes Committee of PHD Chamber of Commerce and Industry. He is author of four successful books on GST published by Taxmann Publication and is also GST expert on taxmann portal.
