The Finance Act, 2024, was brought to India to incorporate amendments in the GST law. And certainly, it brought changes regarding the input tax credit (ITC). It has brought an amendment regarding Section 16(5) and Section 16(4), which is to be given effect from September 27, 2024, whereby an amendment has been made that extends the deadline for claiming ITC. The changes have come to bring more flexibility in taxpayers’ hands and make them fulfill the conditions as prescribed under the GST law.
What is input tax credit (ITC)?
Input tax credit refers to the reduction allowed the taxpayer of the amount of tax he/she has already paid on their acquisitions from the tax payable on sales. This prevents the cascading effect of taxes, where a tax is charged on taxes.
Earlier, ITC was within a short time period generally provided for one year or before filing the annual return. It resulted in the permanent loss of that ITC, which had not been availed, because either there has been a delay in its submission beyond the due date or there have been some unchecked invoices. This scenario has been modified by the Finance Act, 2024, and brought under Section 16.
Revision of Sections 16(5) and 16(4)
- Enhanced Limitation Period for Claim of ITC
The biggest amendment in the Finance Act, 2024, is relating to the ITC availed claim. Section 16(4) kept it strictly tied up within a time frame, which means undue complications to companies that could not file their claims before such periods lapse. However, from September 27th, 2024, it will open up the window even wider for claiming ITC. This is particularly helpful to companies that have encountered problems with preparation or in receipt of their invoices.
This extension will give businesses additional time to recover the ITC for a fiscal year, hence making compliance less stiff and flexible. Taxpayers should also take into consideration this amendment and thus update their process for easy recovery of credits and not to miss time.
- Section 16(5) Implication
The insertion of Section 16(5) clarifies more the ITC process. This new provision of relief is made easier while making credit on goods and services by availing of the same, provided there are a few conditions that must be met, such as suppliers having paid tax on the goods or services supplied and proper documentation available, such as tax invoices.
This is a much-required reform because a large number of cases cropped up whereby suppliers did not provide documentation to back up the ITCs claimed by businesses, or other procedural issues, and the result was that such businesses were prevented from claiming ITC. Under the new developments under Section 16(5), businesses enjoy more elbow room for getting over these issues without letting out the precious tax credits with too much delay in the process.
Why Do These Changes Matter?
The introduction of more flexible ITC rules under Sections 16(5) and 16(4), along with extending deadlines, is expected to liberate businesses from the strict timelines that earlier caused a monetary squeeze when an organization could not utilize all the available ITC and required reconciliation and account settlement.
It is also perceived that this government step is the final step in making the GST compliance structure easier, especially for businesses dealing with more than one supplier and complex supply chains. Businesses would ensure that they do not get double-taxation or miss credits that are supposed to be given under this move by allowing more time to claim ITC.
How to Take Advantage of These Changes?
In order to be proactive with managing change effects on their GST filing, businesses should be prepared. The key steps to benefit from the extended deadline opportunities and Section 16(5) provisions are as follows:
- Regular Reconciliation: Businesses should regularly reconcile their purchase invoices and ensure that all eligible ITC is accounted for before the extended deadline.
- Documentation: It is a fact that all the tax invoices, debits, and credit notes are properly documented. More dependable the process for the claim of ITC is on proper documentation.
- Compliance from Suppliers: One needs to ensure that all the suppliers have filed their GST returns and paid the taxes due. Any non-compliance on the part of the supplier would hinder the claim of ITC.
- Expert Consultation: Businesses are best guided to take consulting advice from tax professionals to accommodate the new rules and to get guidance in the adjustment of ways on the filing that would be affected by changes from the Finance Act, 2024.
Conclusion
The business world is relieved with this notification on 27th September 2024 because the ITC claim deadline is relaxed and therefore even the process becomes simplified under Section 16(5). These changes will make compliance easier for businesses and ensure that claims made to ITC are valid. So, it is essential for business owners to refresh the procedures for GST filing with these new amendments. To learn more or seek professional advice on how you can best utilize these amendments, visit SAP Tax Hub LLP, the best CA firm in Delhi.
All this would do is make tax compliance easier, hence providing an avenue for businesses to get an even better grip on their processes and steer clear of losing some valuable credits. So if you are looking for GST audit services in Delhi and other related services, look no further than Saptax Hub.
