Recently, the suspension on the application of rule 36(4) has ended. From the GSTR-3B of September 2020 onwards, taxpayers should comply for this rule every month.

This rule is one of the most complicated rules to apply in practical circumstances. Let’s discuss what this rule is all about.

In layman’s language, rule 36(4) says that the input tax credit of regular invoices availed in a particular month cannot exceed 110% of the value of invoices matched in GSTR-2A.

Further, as per the circular, an additional condition is also specified. It says that the ITC from the suppliers who have filed their GSTR-1 within the due date will be eligible for availment in the same month. If supplier files GSTR-1 late, then that invoice will become eligible for availment only in next months.

Now, the taxpayers who want to comply with this rule has to do the following exercises every month.

1. Prepare the list of invoices on which he wants to claim ITC.
2. Match those invoices with the invoices available in GSTR-2A.
3. Bifurcate the matched invoices in 2 categories. 
   1. Matched invoices of vendors who have filed GSTR-1 within the due date.
   2. Matched invoices of vendors who have filed GSTR-1 after the due date.
4. Identify the matched invoices of past months, which are becoming eligible for availment in the current month.
5. Keep a record of invoices which are becoming eligible for availment in next months so that they do not get missed out from ITC claim.
6. Claim the ITC of invoices which are eligible for availment in the current month. A variance of 10% is allowed.

As we can see, the above steps can appear very simple to write but believe us they are really difficult to implement in practical situations. Now let’s see what are the difficulties, the taxpayers will be facing? 

1. Matching of Past Invoices: As per GST rules, the ITC of a particular invoice can be claimed up to September of the next financial year. This means that to do the matching, at the maximum the taxpayer can be required to match GSTR-2A of the last 18 months. 
2. Dynamic nature of GSTR-2A: GSTR-2A is a dynamic document. Thus for the matching process, the taxpayer is required to download the GSTR-2A for each of the past months.
3. Tracking GSTR-1 filing dates of vendors: As per the new condition, the ITC will become eligible for availment based on the GSTR-1 return filing dates of the vendors. Thus the taxpayers have to track the return filing dates of vendors.
4. Keeping a record of availment eligibility of the invoices: Due to vendor filing date condition, the taxpayers have to keep a record of availment eligibility of invoices. He needs to track when a particular invoice will be eligible for availment. 

Thus with these challenges, the taxpayer has to complete a very difficult task of complying with rule 36(4). 

We at Digitax Automation are in the process of streamlining this process. Rule 36(4) reports will be added in our system very soon. You can contact us at support@digitaxindia.com for any queries.