GST: Practical issues in reversal of Input Tax Credit for developers opting for New Scheme of Taxation from April 2019

September 05, 2019 1:43 PM

As the due date for filing ITC-03 is approaching, immediate clarity in this regard is required on various issues.

real estate, GST, Input Tax Credit, Practical issues in reversal of Input Tax Credit, ITC-03, developers, due dateA very simple reversal of ITC has a lot of unanswered questions and issues for the trade which have to be sorted out in the next few days.

The real estate sector is one of the most important pillars of the Indian economy. It contributes about 6-8% to India’s gross domestic product (GDP). Owing to a slowdown in the sector, the GST Council, through Notification No. 03/2019 – CT(R) dated 29th March 2019, slashed tax rates for under-construction flats to 5 per cent and for affordable homes to 1 per cent, effective April 1, 2019 to boost demand, and laid out transition-related modalities for its implementation.

The notification came with the condition that in case of ongoing projects, where builders and developers have exercised the option to pay tax at reduced rate, they shall also be required to reverse Input Tax Credit (ITC) using the formula laid down in Annexure of notification before the due date of furnishing of return for the month of September 2019, i.e. 20th October 2019. The complex formula is just the prologue of the book. The real issue arises at the time of reporting the said reversal.

The notification states that the registered person shall pay such amount either by cash or utilising the Input Tax Credit and details shall be furnished in FORM GST ITC- 03. However, GST ITC 03 can normally be filed in two cases, i.e. Taxpayer has opted for composition scheme, or goods or services supplied by the taxpayer become wholly exempt.

The form allows taxpayer to upload the data in one of the two tabs, one being details of goods with invoices and the other being details of goods without invoices. However, the types of goods are divided as inputs held in stock, inputs contained in semi-finished and finished goods held in stock & Capital Goods held in stock.

In order to input the data in ITC 03 Form, taxpayers have to compute the reversal amount, GSTIN wise and/or Invoice wise. However, invoice wise /GSTIN wise compilation in itself is an uphill task. Further, after compilation of the said details, filling up invoice-wise details in the utility for the voluminous data would be a task in itself for the trade as there would be many invoice details to be uploaded.

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The main unanswered question is what about the Input Service Credit? Form GST ITC -03 has no room for reversal of ITC related to input services. Builders for whom input services (Works contracts, architects, etc.) hold a major part of ITC will face a confusion over how to report the said reversal in the form as relevant columns for Input Services are not available.

Further, in case of cash crunch faced by the builder, the option of filing an application in FORM GST DRC – 20, seeking extension of time for payment of taxes or for allowing payment in instalments is available. However, ITC-03 Form has no option for setting off the liability using DRC-20. Does that mean, one cannot file ITC-03 till the extended time or report only partial reversal for which payment is being done? In case of payments in instalments, how does one reflect the same in ITC-03?

As the due date for filing ITC – 03 is approaching, immediate clarity in this regard is required on the issues i.e. Is GST ITC- 03 the correct form for disclosing the reversal of ITC, Is invoice wise/ GSTN wise reporting of reversal needed, How does one report the reversal of invoices for Input Services, In case of request for instalment facility does one not file ITC 03, Is ITC 03 to be uploaded on every partial payment?

A very simple reversal of ITC has a lot of unanswered questions and issues for the trade which have to be sorted out in the next few days.

The GST Council has always been very fast in resolving the hardships faced by the trade on any legal or procedural front. Hopefully clarity in the said matter will be given at the earliest. The trade is not looking at any extensions, it is only expecting a fairly simple reporting requirement which should allow them to submit a single figure of reversal instead of invoice-wise reversals.

(By Parag Mehta , Partner, & Khushboo Fofaria, Associate, N.A Shah Associates LLP)

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