Restricting of input tax credit to the extent of 110% of the input appearing on GSTIN portal (GSTR 2A) will have negative impact on small and medium scale enterprises (“MSME”). Since there is an option to file GST Return 1 quarterly for the taxpayers having turnover less than 1.5 crore, input credit on the goods/services received from them cannot be claimed for up-to to 3 months.

Further, as most of the transactions of MSME are with other MSME’s, MSME taxpayers will loose the benefit of input tax credit for a period of three months which will have impact the working capital requirement of such taxpayers.

Large enterprises may reduce the procurement of goods/services from MSME’s to get away from the tedious job of reconciling the input tax credit on purchases made from such MSME’s (as they would be filing GSTR 1 on a quarterly and not on monthly basis).

Other implication could be that large enterprises refuse to pay the full consideration to their MSME vendors till they file quarterly GSTR 1. Such practice will have double impact on the working capital of MSME’s as their tax outflow will out do their inflow.

The issue of working capital burden on MSME’s could only be imagined and far from being managed on a day to day basis.

To resolve the above-mentioned difficulties faced by the MSME’s the government is requested to consider the same and issue clarification saying taxpayers may consider reconciling and restricting the input to the extent of 110% on quarterly basis and not on a monthly basis.