The audacious 2022 budget – Decryption of the tax credit on purchases – Taxation


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In addition to being friendly and progressive, the budget provides a long-term growth roadmap for the country — in fact — a boost for the economy. Given the current pandemic and economic uncertainty, the Union budget proposals for 2022 have come as a respite in several areas. There were, however, some shortcomings on the GST front. One such puzzling amendment relates to the bedrock of the GST, which is the Input Tax Credit (“ITC”). The fungibility of the tax credit is an integral part of indirect taxation and is based on the central principle of shifting the tax burden to the final consumer. Despite this, the provisions relating to the use of the ITC under Article 16 of the CGST Law still appear to be under government control. The ITC provisions have time and again witnessed a myriad of transformations, defeating the purpose of transparent credit, which was the essential foundation of the GST system.

Article 16 of the CGST law postulates certain essential conditions for obtaining credit by the beneficiary of goods or services. In October 2019, Rule 36(4) of the CGST Rules was notified which limited the ITC regarding unmatched invoices to 20% of the matched invoices – what was commonly referred to as “Provisional ITC”. Eventually, this threshold was reduced to 10% and then to 5%. In the end, the concept of “provisional ITC” was canceled see Notification No. 39/2021-Central tax of December 21, 2021 and clause (aa) under Article 16(2) which was discussed at the 45and The GST Board meeting of September 17, 2021 came into effect on January 1, 2022. Accordingly, Rule 36(4) of the CGST Rules has also been amended to restrict the use of ITCs to the extent that it is reflected in the automatically generated GSTR 2B statement, i.e. the details uploaded by the supplier.

With this amendment, it can undoubtedly be stated that the recipient’s use of ITC would be entirely dependent on the act of the supplier, reversing the “two-way communication” that was proposed when the GST was implemented. In addition, amendments are proposed to Sections 37, 38 and 41 to remove the filing provisions of GSTR 2 (which was introduced at the start of the GST but has remained suspended).

In line with the above, a new condition has been proposed in the 2022 Union budget through the introduction of subsection (ba) of Article 16(2) to provide that the ITC would not be available if it is limited in the details provided. in GSTR 2B – which separates details of eligible and non-eligible ITCs. Again, after careful interpretation of said provision, one may wonder what would be considered “non-qualifying ITC” for the recipient, i.e. whether it would be limited to the unfair acts of the provider.
to know. non filing of GSTR-3B, short payment of GST liability, etc. or would it be extended to the list of blocked credits as encapsulated under article 17 (5) of the CGST law. The latter scenario would pose a challenge in terms of the specific credits that are available for particular sectors, despite being covered by Article 17(5), for example – the JTI on contracted works services is available for contractors/builders.

As if the abolition of the concept of “provisional ITC” were not enough, the 2022 budget added another complication by proposing to freshly replace section 41 which suggests 100% use of the ITC provided it is deposited. with the old check. Otherwise, the cancellation of it with the payment of interest is required. The said amendment proposes to charge interest to the beneficiary for the supplier’s error, which is contrary to the established principle of non-recovery of taxes from the buyer unless the remedies against the seller have first been exhausted by the government. It would indeed be interesting to see if this amendment endures the principles laid down by various authorities on many occasions. It should be mentioned that knowing if the seller has paid the tax and tracking it would continue to be a source of concern for the recipient. Nevertheless, it would be desirable to ensure strong legal recourse against suppliers by tightening supplier contracts.

However, unlike the existing provisions, this section allows for the recapture of ITCs following rectifications made by the supplier, which advances many steps towards achieving the objective of GST reform. Be that as it may, another issue of the proposed amendments concerns the fate reserved for the reimbursement of the interest thus paid.

Curiously, the 2022 finance bill to see Article 16(4) of the CGST law proposes to revise the deadlines for availing oneself of the ITC of any invoice/debit note for the supply of goods/services until November 30 following the end of the financial year in which this invoice or debit note relates to or the provision of the annuity declaration, whichever comes first (which, according to the existing provisions, is prior to September 30 or the filing of the annual declaration). This increased time to qualify for ITC would be a relief to many taxpayers, as there would be some extra time available after books of accounts are finalized after which any missed ITC can be used.

The two-month increase in the time limit to qualify for ITC and the simultaneous restriction of the use of ITC only with respect to details automatically filled in GSTR 2B is certainly a sting for taxpayers. Either way, it’s worth considering whether the November 30 deadline restriction would apply to the retrieval of ITCs, as noted in the aforementioned paragraph. Overall, it can be fair to conclude that the 2022 Union budget has been a victory for taxpayers.

Originally posted by TaxSutra

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