Understanding the Time Limit for Availing Input Tax Credit (ITC) on RCM

Trade & Industry Clarity Needed: Businesses seek clarification on the time limit for availing ITC under the CGST Act when tax is paid under the reverse charge mechanism (RCM). Issue of Tax on Reverse Charge: Sometimes, businesses pay tax on services from overseas related persons without initially issuing an invoice. They later issue the invoice and pay tax based on clarifications or audits.

Differing Views: Some tax authorities believe ITC should be availed by September/November of the year after the services were received. However, industries argue ITC should be available until the September/November following the financial year the invoice is issued. Legal Basis: Section 16(2)(a) of the CGST Act requires a tax invoice or other tax-paying documents to avail ITC. Rule 36(1)(b) of the CGST Rules supports this.

Issuing Invoice: When tax is payable under RCM, the recipient must issue an invoice as per section 31(3)(f) of the CGST Act and pay the tax in cash. Time Limit for ITC: Section 16(4) of the CGST Act states ITC cannot be availed after November 30 of the year following the financial year to which the invoice pertains or the annual return filing, whichever is earlier.

Clarification Issued: The financial year of the invoice issuance determines the time limit for availing ITC under RCM. If the invoice is issued late, interest and possible penalties may apply. Action Required: Trade notices should be issued to inform the public, and any difficulties in implementing this circular should be reported to the Board.