You are not able to claim ITC in GST, here is why

Many businesses especially merchandisers, wholesalers, or traders faces DRC-01 notices for claiming ITC when they miss the GSTR-1 deadlines. This delays can be due to technical issues, staff shortages or internet failure. Simply enabling businesses to record their own purchases and claim ITC on those purchases, for which their vendors are unable to file the GSTR-1 before the cutoff date, will allow the government to resolve such crucial business difficulties. This gives companies the opportunity to claim ITC, and their vendors will have about 25 days to report the same before the next month's return. But it's not that simple.

Indian businesses which are registered under GST also with sizeable turnover have been facing issues due to cut-off date implementation in claiming ITC due to late filing of GSTR-1 by business vendors.

Here, there maybe several reasons that many businesses are unable to file the GSTR-1 by the cut off date to possible reason of,

1. Technical errors - Business might be facing error on government portals due to high traffic on cut-off dates.

2. Human resource- They might also be facing lack of workforce in an organisation due to unavailability of responsible person.

3. Lack of Communication - Businesses might have third party for filing their GST and claiming ITC, but lack of communication between the parties might hinder the process.

4. Blackouts - Electricity and internet blackouts are a normal scenario in any developing country which can cause delay.

Due to the mentioned reasons, many businesses are unable to file their GSTR-1 before cut-off date which makes claiming ITC for their customers impossible in the same month. This burdens the businesses with tax for that particular month which is very impactful for business owners like merchandisers, wholesalers, or traders who purchase and sell net to net every month.

ITC Claims Made Hard for Businesses

Does the government of India fail to understand the business's problems. Government can sort out such vital issues of businesses by simply allowing businesses to record their own purchases and claim ITC on the same for which their vendors are unable to file the GSTR-1 before cut-off date. This allows businesses to claim ITC and their vendors will have time to report the same before next month's return giving them approximately 25 days period.

Now, if businesses are manually editing the purchase data and claiming ITC they are facing DRC-01 notice from the government even though the purchases appear in GSTR-2A report. The issue arises because the government need ITC to be claimed as per GSTR-2B. In response to the DRC-01 notice, businesses are required to:

1. Give a detailed explanation to the government regarding claiming of ITC.

2. 18% interest p.a needs to be paid to the goverment on the claimed amount.

3. In some cases a business personal need to meet the GST officer and explain the reason for claiming ITC.

4. If this happens in year end business needs to disclose the same in balance sheet.

Reasons Behind Strict ITC Rules in India?

Traditionally, business in India are not that adaptable to the online tax filings. A lot of businesses still heavily rely in manual billing and accounting which leads to multiple calculation and omission errors. Following are few more reason why the government is not trusting the businesses.

1. Due to malpractices like over billing of purchases and claiming ITC for the same.

2. Without a cut-off date, businesses will not take the timeline seriously for filing returns.

3. Some businesses may misuse the system by inflating ITC claims and reducing their tax liability.

4. GSTR-2B ensures ITC is validated by both buyer and seller, which is not guaranteed with manual entries.