Aug 272018

Review of GST Input Tax Credit Claim

Why there is need for review of ITC claim:

Since the rules for claiming ITC are neo for everyone including tax consultants and hence it can be understood that there could be:

  • Errors of understanding,
  • System errors and
  • Transactional mistakes

Thus, for every taxable person there is last chance to ensure total reconciliation and proper availment is carryout before filing September 2018 return.

Special focus point in review of ITC claim:

  • Transaction not entered in accounting records at all:
    1. Stock transfers to different states
    2. Agent principle supply
    3. Supply to related party without consideration / inadequate consideration
    4. Liability under reverse charge
    5. Identification of Barter activities
    6. In the same line identification of non-monetary consideration in any exchange transaction, which leads to revision of valuation

Since no records for above transaction is available in normal book of accounts and accounting trail and hence special focus must be adopted on these transaction to avoid under booking and under payment of liability.

  • Review of ITC on transaction entered in books of accounts:
    1. Procurement policy to ensure that vendor had paid taxes on invoice
    2. Invoice must have properly indicated and value of taxes paid
    3. All major inputs, capital goods and services needs to be review to ensure that anything on which credit have been taken is not blocked under the act
    4. Ensure source of procurement must be from registered vendor
    5. Whether ITC is taken only after receipt of goods and /or services
    6. Whether GST liability under RCM is actually paid to avoid payment of irrevocable interest.
    7. Ensure that the tax paid on purchases returns on GST invoice is equal to credit on inputs
    8. In case of capitalization of expenses ensure whether ineligible credits exist or eligible credits are not availed
    9. Confirm whether all vendor payments being made within 180 days: There is a time limit for payment to vendors within 180- days. If it exceeds, ITC needs to be reversed with interest, however an amendment for without interest reversal has been proposed for amendment in the CGST Bill. On payment to the vendor is made, the credit can be claimed back.
    10. Review the discount given / taken and debit notes and credit notes
    11. ITC credit is not available for personal transactions
    12. Review of various returns filed under GST such as GSTR 1 and GSTR 3B and identification of differences in ITC if any, between GSTR 3B and GSTR 2A.
    13. Reivew of ratios like credit availed and utilised to total GST, ITC/ Total purchases and expenses

The above are few focus areas of ITC review which must be done before the end of every financial year to ensure that any wrong credit availed must be reversed to avoid future legal tangle.