Input tax credit (ITC) crisis brewing, profitability, and cash flow under threat

Trade and industry bodies could lose a huge amount of input tax credit (ITC), which could hit their profitability and cash flow if they fail to match their ITC claims under goods and services tax (GST) with the returns filed by vendors by tomorrow.

Input tax credit (ITC) crisis brewing, profitability, and cash flow under threat
Rajeev Dimri, partner, Deloitte Touche Tohmatsu India LLP, said the loss of ITC due to mismatch of invoices could be a significant number. “Even if we deal with a fraction of ITC claims, it is a large amount of money”. Image Source: Reuters
Written By: Praveena Sharma
Updated: Fri, Oct 19, 2018
12:16 pm
ZeeBiz WebDesk
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Trade and industry bodies could lose a huge amount of input tax credit (ITC), which could hit their profitability and cash flow if they fail to match their ITC claims under goods and services tax (GST) with the returns filed by vendors by tomorrow.

They are aggressively lobbying with the finance ministry, Central Board of Income Taxes and Customs (CBIC) and GST Council to extend the last date for filing ITC claims - October 20 - so that the date for filing ITC claims is properly aligned with that of vendors’ filing of returns for their reconciliation.

A letter shot off by The Institute of Chartered Accountant of India (ICAI) to finance minister Arun Jaitley and copied to Hasmukh Adhia, finance secretary - Department of Revenue and other government officials last week sought extension of the deadline for filing ITC claims to December 31.

Listing 12 reasons for its request, ICAI said the way the dates for filing returns were currently set, it was “impossible” to ensure that claims matched with the vendors’ returns.“As disclosed by official statistics, at least 30-35% of the registered taxpayers, who have filed GSTR-3B returns (for ITC claims), have not filed the GSTR 1 returns (reflecting vendors’ returns). In such a situation, it is impossible for the recipient to confirm by October 20 that credit has correctly been availed for in invoices issued up to 31/3/18,” states the letter written by Navin N D Gupta of ICAI last week.

The letter, a copy of which is with DNA Money, said, “Further since complete GSTR-2A becomes available only in May 2018 (with the last date for GSTR1 of March 2018 being May 2108), an additional time need to be provided to recipient to take up cases with vendors where they have either not uploaded the invoices or filed their GSTR 1 and get them to take appropriate action”.

The crux of the whole issue is that if the companies’ ITC claims filed by October 20 do not match with their vendors’ returns, it will be rejected. Since this was on an annual basis, it gets locked and they will not get a chance to correct it and so it would be lost forever.

Rajeev Dimri, partner, Deloitte Touche Tohmatsu India LLP, said the loss of ITC due to mismatch of invoices could be a significant number. “Even if we deal with a fraction of ITC claims, it is a large amount of money”.

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He said this would hit the profit of a company. Another executive with a leading accounting firm said one his clients with a turnover of Rs 500 crore had a credit mismatch of Rs 12 crore.

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