According this Rule, a registered person can avail ITC in respect of the invoices, the details of which have not been uploaded by the suppliers and reflected in GSTR-2A of the registered person availing ITC, only to the extent of 20% of the total eligible ITC i.e. the ITC as reflected in its GSTR 2A. This limit was reduced from 20% to 10% w.e.f. 01 Jan 2020.

The CBIC introduced sub-rule (4) in Rule 36 of the CGST Rules, 2017 w.e.f. 09.10.2019.

According this Rule, a registered person can avail ITC in respect of the invoices, the details of which have not been uploaded by the suppliers and reflected in GSTR-2A of the registered person availing ITC, only to the extent of 20% of the total eligible ITC i.e. the ITC as reflected in its GSTR 2A. This limit was reduced from 20% to 10% w.e.f. 01 Jan 2020.

In simple terms, a person can avail ITC only 10% more than what is reflecting in GSTR-2A as eligible credit or actual eligible ITC in its purchase register, whichever is less.

Rule 36(4): Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 10 per cent * of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37. *Before 01 Jan 2020, it was 20%.

Relief due to COVID-19 spread:

Notification No. 30/2020 – Central Tax, 3rdApril, 2020 In the said rules, in sub-rule (4) of rule 36, the following proviso shall be inserted, namely:- “Provided that the said condition shall apply cumulatively for the period February, March, April, May, June, July and August, 2020 and the return in FORM GSTR-3B for the tax period September, 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition above.”

It is provided that the said limit of 10% shall apply cumulatively for the tax periods Feb-20 to Aug-20 and the return in GSTR-3B for Sep-20 shall be furnished with the cumulative adjustment of ITC for the said months in accordance with the above condition of 10%.

*CBIC Circular No. 136/06/2020-GST, dated 3.4.2020:*

Whether restriction under rule 36(4) would apply during the lockdown period?

Vide notification No. 30/2020- Central Tax, dated 03.04.2020, a proviso has been inserted in CGST Rules 2017 to provide that the said condition shall not apply to input tax credit availed by the registered persons in the returns in FORM GSTR-3B for the months of February, March, April, May, June, July and August, 2020, but that the said condition shall apply cumulatively for the said period and that the return in FORM GSTR-3B for the tax period of September, 2020 shall be furnished with cumulative adjustment of input tax credit for the said months in accordance with the condition under rule 36(4).

ILLUSTRATION:

Month	Case 1			Case 2
	Total ITC	Eligible ITC in 2A	Maximum ITC can be claimed in GSTR-3B	Total ITC	Eligible ITC in 2A	Maximum ITC can be claimed in GSTR-3B
Feb-20	100	85	100	150	100	150
Mar-20	150	120	150	200	120	200
Apr-20	60	40	60	100	70	100
May-20	80	50	80	80	60	80
Jun-20	100	70	100	70	55	70
Jul-20	110	100	110	60	50	60
Aug-20	120	100	120	50	40	50
Sub-total	720	565	720	710	495	710
Sep-20	150	130	?	80	75	?
Total	870	695		790	570

 

Calculation of ITC for Sep-2020	Case 1	Case 2
Eligible ITC till End of Sep-20	695	570
Add 10%	69.5	57
Total A	764.5	627
Total ITC till date B	870	790
ITC than can be availed as per rule 36(4) (Whichever is lower from A &B )C	764.5	627
Less: ITC already availed till August D	720	710
ITC to be availed/ (Reversed) in September (C-D) [Interest as per section 50 will also be paid]	44.5	(83)

Here we can see that in case 1, the tax payer is able to avail ITC of only Rs.44.5 as against total credit of 130 in his purchase register, due to 2A mismatch. While there can be a situation like case 2, which may lead to reversal of ITC Rs. 83 to meet the requirement of rule 36(4). This is how the cumulative effect of Rule 36(4) will be given in September 2020.

Therefore, vendor compliance will again play a very important role for maximizing the ITC. Rule 36 (4) is not suspended but its effect of Feb 2020 to Aug 2020 has been deferred till September, 2020.

CONCLUSION:

•		Whether 10% rule is suspended? – No
•		Whether 10% rule is Not Applicable for February 2020 to August, 2020? – It is applicable but the application of this rule is to be done cumulatively for the months of Feb 2020 to Aug, 2020
•		May I file GSTR 3B without applying rule 36(4)? – Yes, you may.
•		How shall it impact the GSTR 3B of September (to be filed as per due date i.e. 20 Oct 2020)? – In Sep-20 return, we need to consider the rule 36(4) but cumulatively by taking effect of the new amendment. (as explained in the illustration below)
•		If I have not filed GSTR 3B of Jan 2020 before 20 March 2020 then whether the same shall be relaxed as per the Notification No. 36/2020 – Central Tax, 3rdApril, 2020 – No, Proviso inserted is only to give the relaxation for the months of Feb 2020 to Aug 2020 only.
•		Is this relaxation is relevant for composition scheme?– No, Person registered under Composition scheme is not eligible to take the ITC itself so question of relevance of rule 36(4) does not arise at all.
•		Whether the person switching from composition scheme to normal scheme w.e.f. 01/ 04/2020 will be eligible to get the relaxation as per the Notification No. 36/2020 – Central Tax, 3rd April, 2020?- Yes, because from April 2020, he does not remain the composition taxable person rather the same is under the purview of normal scheme.
•		Whether this deferment will cause the interest deferment on the excess ITC taken for the period Feb 2020- Aug 2020? – If the cumulative effect of the period of Feb 2020- Aug 2020 is taken care of as per the Notification No. 36/2020 – Central Tax, 3rdApril, 2020 in the months of Sep 2020 then there is not a consequence of interest to be into the picture