Decoding of New Rule 36(4) of CGST Rules, 2017, Restriction in Availment of Input Tax Credit (ITC)

Clarification regarding New Rule 36(4) of CGST Rules, 2017, Restriction in Availment of  Input Tax Credit (ITC)

Circular No. 123/42/2019– GST, Dt. 11 Nov 2019

This being a new provision, the restriction is not imposed through the common portal and it is the responsibility of the taxpayer that credit is availed in terms of the said rule and therefore, the availment of restricted credit in terms of sub-rule (4) of rule 36 of CGST Rules shall be done on self-assessment basis by the tax payers.

Various issues relating to implementation of the said sub-rule and the clarification on each of these points is as under: –

Issue No. 1

What are the invoices / debit notes on which the restriction under rule 36(4) of the CGST Rules shall apply?

The restriction of availment of ITC is imposed only in respect of those invoices / debit notes, details of which are required to be uploaded by the suppliers under sub-section (1) of section 37 and which have not been uploaded.

Therefore, taxpayers may avail full ITC in respect of IGST paid on import, documents issued under RCM, credit received from ISD etc. which are outside the ambit of sub-section (1) of section 37, provided that eligibility conditions for availment of ITC are met in respect of the same.

The restriction of 36(4) will be applicable only on the invoices / debit notes on which credit is availed after 09.10.2019.

Issue No. 2

Whether the said restriction is to be calculated supplier wise or on consolidated basis?

The restriction imposed is not supplier wise. The credit available under sub-rule (4) of rule 36 is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Further, the calculation would be based on only those invoices which are otherwise eligible for ITC.

Accordingly, those invoices on which ITC is not available under any of the provision (say under sub-section (5) of section 17) would not be considered for calculating 20 per cent. of the eligible credit available.

Issue No. 3

FORM GSTR-2A being a dynamic document, what would be the amount of input tax credit that is admissible to the taxpayers for a particular tax period in respect of invoices / debit notes whose details have not been uploaded by the suppliers?

The amount of input tax credit in respect of the invoices / debit notes whose details have not been uploaded by the suppliers shall not exceed 20% of the eligible input tax credit available to the recipient in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub- section (1) of section 37 as on the due date of filing of the returns in FORM GSTR-1 of the suppliers for the said tax period.

The taxpayer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1 under sub-section (1) of section 37.

Issue No. 4

How much ITC a registered tax payer can avail in his FORM GSTR-3B in a month in case the details of some of the invoices have not been uploaded by the suppliers under subsection (1) of section 37.

Sub-rule (4) of rule 36 prescribes that the ITC 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 under subsection (1) of section 37, 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 subsection (1) of section 37.

The eligible ITC that can be availed is explained by way of illustrations, in a tabulated form, below.

In the illustrations, say a taxpayer “R” receives 100 invoices (for inward supply of goods or services) involving ITC of Rs. 10 lakhs, from various suppliers during the month of Oct, 2019 and has to claim ITC in his FORM GSTR-3B of October, to be filed by 20th Nov, 2019.

Case	Details of suppliers’ invoices for which recipient is eligible to take ITC	20% of eligible credit where invoices are uploaded	Eligible ITC to be taken in GSTR-3B to be filed by 20th Nov.
I	Suppliers have furnished in FORM GSTR-1 80 invoices involving ITC of Rs. 6 lakhs as on the due date	Rs.1,20,000/-	Rs. 6,00,000 (i.e. amount of eligible ITC available, as per details uploaded by the suppliers) + Rs.1,20,000 (i.e. 20% of amount of eligible ITC available, as per details uploaded by the suppliers) = Rs. 7,20,000/-
II	Suppliers have furnished in FORM GSTR-1 80 invoices involving ITC of Rs. 7 lakhs as on the due date	Rs.1,40,000/-	Rs 7,00,000 + Rs. 1,40,000 = Rs. 8,40,000/-
III	Suppliers have furnished in FORM GSTR-1 75 invoices having ITC of Rs. 8.5 lakhs as on the due date	Rs. 1,70,000/-	Rs. 8,50,000/- + Rs.1,50,000/-* = Rs. 10,00,000 * The additional amount of ITC availed shall be limited to ensure that the total ITC availed does not exceed the total eligible ITC.

Issue No. 5

When can balance ITC be claimed in case availment of ITC is restricted as per the provisions of rule 36(4)?

The balance ITC may be claimed by the taxpayer in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers. He can claim proportionate ITC as and when details of some invoices are uploaded by the suppliers provided that credit on invoices, the details of which are not uploaded (under sub-section (1) of section 37) remains under 20 per cent of the eligible input tax credit, the details of which are uploaded by the suppliers.

Full ITC of balance amount may be availed, in present illustration by “R”, in case total ITC pertaining to invoices the details of which have been uploaded reaches Rs. 8.3 lakhs (Rs 10 lakhs /1.20). In other words, taxpayer may avail full ITC in respect of a tax period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC/ 1.2. The same is explained for Case No. 1 and 2 of the illustrations provided at Sl. No. 4 above as under:

Case-I	“R” may avail balance ITC of Rs. 2.8 lakhs in case suppliers upload details of some of the invoices for the tax period involving ITC of Rs. 2.3 lakhs out of invoices involving ITC of Rs. 4 lakhs details of which had not been uploaded by the suppliers. [Rs. 6 lakhs + Rs. 2.3 lakhs = Rs. 8.3 lakhs]
Case-II	“R” may avail balance ITC of Rs. 1.6 lakhs in case suppliers upload details of some of the invoices involving ITC of Rs. 1.3 lakhs out of outstanding invoices involving Rs. 3 lakhs. [Rs. 7 lakhs + Rs. 1.3 lakhs = Rs. 8.3 lakhs]

Issues not clarified

This circular has failed to address the situation where suppliers have opted for quarterly filing of GSTR-1 while the recipient files monthly GSTR-1. This will create hardship for small taxpayers as recipients would try to get supplies from the dealers (big dealers) who opt for monthly filing of GSTR-1.  

Impact of 20% Rule

Restriction imposed in Rule 36(4) will certainly impact working capital of taxpayers as they have to pay more taxes when suppliers file belated returns in Form GSTR-1. Moreover, the taxpayer would not be able to claim refund of excess tax paid by them due to default of the suppliers. Also, this reconciliation exercise of ITC is going to consume lot of man hours every month.

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Income under the House Properties

Basis of Charge [Section 22]:

Income from house property shall be taxable under this head if following conditions are satisfied:

a) The house property should consist of any building or land appurtenant thereto;

b) The taxpayer should be the owner of the property;

c) The house property should not be used for the purpose of business or profession carried on by the taxpayer.

Computation of income from house property:

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Income from a house property shall be determined in the following manner:

Particulars	Amount
Gross Annual Value	-
Less: Municipal Taxes	-
Net Annual Value	****
Less: Standard deduction at 30% [Section 24(a)]	-
Less: Interest on borrowed capital [Section 24(b)]	-
Income from house property	****

Gross Annual value [Sec. 23(1)]

The Gross Annual Value of the house property shall be higher of following:

a) Expected rent, i.e., the sum for which the property might reasonably be expected to be let out from year to year. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to maximum of standard rent;

b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy

Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to the gross annual value.

Deductions:

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Description	Nature of Deductions
Municipal Taxes	Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if: a) Taxes are borne by the owner; and b) Taxes are actually paid by him during the year.
Standard Deduction[Section 24(a)]	30% of net annual value of the house property is allowed as deduction if property is let-out during the previous year.
Interest on Borrowed Capital * [Section 24(b)]	a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction shall be allowed as deduction
	b) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 years.
	c) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.

Note: With effect from Assessment Year 2020-21, deduction for interest paid or payable on borrowed capital shall be allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain same i.e., Rs. 30,000 or Rs. 2,00,000, as the case may be.

* Any interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed.

* Deduction for interest on borrowed capital shall be limited to Rs. 30,000 in following circumstances:

a) If capital is borrowed before 01-04-1999 for the purpose of purchase or construction of a house property;

b) If capital is borrowed on or after 01-04-1999 for the purpose of re-construction, repairs or renewals of a house property;

c) If capital is borrowed on or after 01-04-1999 but construction of house property is not completed within five years from end of the previous year in which capital was borrowed.

Deduction for interest on housing loan [Section 80EE]

Deduction of up to Rs 50,000 shall be allowed to an Individual for interest payable on loan taken for the purpose of acquisition of a house property subject to following conditions:

 a)  Loan has been sanctioned by Financial institution during the financial year 2016-17;

 b)  The amount of loan sanctioned does not exceed Rs 35,00,000;

 c)  The value of residential property does not exceed Rs 50,00,000;

 d)  The assessee does not own any residential house property on the date of sanction of loan;

 e)  Where deduction has been allowed under this section, no deduction shall be allowed in respect of such interest under any other provision.

Computation of Income from House Property
S. No.	Property Type	Gross Annual Value of the property	Deduction for municipal taxes	Net Annual Value of the property	Standard Deduction	Interest on borrowed capital
1.	Two self-occupied house property	Nil	Nil	Nil	Nil	Deduction for interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as the case may be.
2.	House property could not be occupied by the owner due to employment or business carried on at any other place	Nil	Nil	Nil	Nil	Deduction for interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as the case may be.
3.	Let out property	To be computed as per provisions of Section 23(1)	Allowed on actual payment basis	Gross annual value less Municipal taxes	30% of Net Annual Value	Entire amount of interest paid or payable on borrowed capital shall be allowed as deduction. Pre-construction interest shall be allowed as deduction in 5 annual equal installments (Subject to certain conditions).
4.	More than two-self occupied properties	Only two properties selected by the taxpayer will be considered as self-occupied house properties and all other properties shall be deemed to be let-out for the purpose of computation of income under the head house property.
5.	A self-occupied property let-out for the part of the year	The house will be taken as let-out property and no concession shall be available for the duration during which the property was self-occupied.
6.	One part of the property is let-out and other part is used for self-occupied purposes	Each part of the property shall be considered as separate property and income will be computed accordingly

Composite Rent

If letting out of building along with movable assets i.e., machinery, plan, furniture or fixtures, etc. forms part of a single transaction and are inseparable, the composite rent shall be taxable under the head “Profits and gains from business or profession” or “Income from other sources”, as the case may be. On the other hand, if the letting out of building is separable from letting of other assets, then income from letting out of building shall be taxable under the head “Income from house property” and income from letting out of other assets shall be taxable under the head “Profits and gains from business or profession” or “Income from other sources”, as the case may be.

Treatment of unrealized rent and arrears of rent [Explanation to section 23(1)]

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Deduction for unrealized rent:

Unrealized rent is that portion of rental income which the owner could not realize from the tenant. Unrealized rent is allowed to be deducted from actual rent received or receivable only if the following conditions are satisfied:

a) The tenancy is bona fide;

b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

c) The defaulting tenant is not in occupation of any other property of the assessee;

d) The taxpayer has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

Arrears of rent or recovery of unrealized rent [Section 25A]

Amount received in respect of arrears of rent or any subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head "Income from house property" in the year in which such rent is realized or received (whether or not the assessee is the owner of that property in that year).

Further, 30% of such rent shall be allowed as deduction.

Co-owner and Deemed Owner

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Property owned by co-owners [Section 26]:

If house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property, the annual value of the property will be taken in proportion to their share in the property. In such a case, each co-owner shall be entitled to claim benefit of self-occupied house property in respect of their share in the property (subject to prescribed conditions). However, where the shares of co-owners are not definite, the income of the property shall be assessed as that of an Association of persons.

Deemed owner [Section 27]:

Income from house property is taxable in the hands of its owner. However, in the following cases, legal owner is not considered as the real owner of the property and someone else is considered as the deemed owner of the property to pay tax on income earned from such house property:

1. The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate;

2. A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme shall be deemed to be the owner of that building or part thereof;

3. A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof;

4. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in section 269UA(f), shall be deemed to be the owner of that building or part thereof.

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CBDT extends Tax ITR filing deadline to October 31

The Central Board of Direct Taxes (CBDT) has decided to extend the deadline for filing of ITRs and Tax Audits Reports by a month.  Given the relentless demands by Chartered Accountants (CAs) and tax consultants, the CBDT has given a breather till October 31. It will also provide some respite to smaller companies too, who are struggling with GST filings.

Last night, the CBDT tweeted: “On consideration of representations recd from across the country, CBDT has decided to extend the due date for filing of ITRs & Tax Audit Reports from 30th Sep, 2019 to 31st of Oct, 2019 in respect of persons whose accounts are required to be audited.formal Notification will follow.

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brief introduction to domestic company under income tax act

Meaning​

As per Section 2(22A)​, "domestic company" means an Indian company, or any other company which, in respect of its income liable to tax under this Act, has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income

Tax Rates

A. Income-tax

·         In the case of a domestic company 30 % of the total income;

·         but in case total turnover or the gross receipt in the previous year 2017-18 does not exceed Rs. 400 crore than the rate of tax will be 25% In the case of a domestic company

The amount of income-tax computed shall, be increased by a surcharge,-

Surcharge rate :

Particulars	Tax Rate
If total income exceeds Rs. 1 crore but not Rs. 10 Crore	7% of tax calculated on domestic company/ 2 % of tax calculated on foreign company as per above rates
If total income exceeds Rs. 10 crore	12% of tax calculated on domestic company/ 5 % of tax calculated on foreign company as per above rates

Provided that in the case of every company having a total income exceeding one crore rupees but not exceeding ten crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees :

Provided further that in the case of every company having a total income exceeding ten crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees by more than the amount of income that exceeds ten crore rupees.

Health and Education Cess

The amount of income-tax as increased by the applicable surcharge, shall be further increased by "Health and Education Cess on income-tax", calculated at the rate of four per cent of such income-tax and surcharge

B. Minimum Alternate Tax

A company shall be liable to pay MAT @ 18.5% of book profit (plus surchage and health and Education Cess as applicable) where the normal tax liability of the company is less than 18.5% of book profit.

Dividend Distribution Tax (DDT)

Companies are required to pay tax on the dividend distributed to the shareholders in a particular year. This dividend is exempted in the hands of shareholders upto an amount of Rs. 10 lakh but the companies have to pay tax @ 20.56 %.

New Updates

The Centre slashed effective corporate tax to 25.17 per cent, inclusive of all cess and surcharges, for domestic companies. Making the announcement, Finance Minister  said the new tax rate will be applicable from the current fiscal which began on April 1.

·         New provision inserted in the income tax act with effect from fiscal year 2019-20, that allows any domestic company to pay income tax at the rate of 22% subject to condition they will not avail any incentive or exemptions.

·         Manufacturing companies set up after October 1 to get option to pay 15% tax. Effective tax rate for new manufacturing firms to be 17.01% inclusive of surcharge & tax.

·         Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not be charged

·         Higher surcharge will also not apply on capital gains on sale of security including derivatives held by FPIs

·         Enhanced surcharge will not apply to capital gains arising on equity sale or equity-oriented funds liable to STT stabilise flow of funds into capital markets

·         To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from 18% to 15%

·         CSR 2% spending to include government, PSU incubators and public funded education entities, IITs

New domestic manufacturing companies incorporated after October 1, can pay income tax at a rate of 15 per cent without any incentives. Meaning, effective tax rate for new manufacturing companies will be 17.01 per cent inclusive of all surcharge and cess.