03 Apr 2018Posted By: Mudit Handa

How to deal with the problem of Transitional credit under GST?

One of the most common uncertainties a propos of GST is the refund of input credit claimed on the taxes paid on the raw material. Being one of the most dubious issues in the scenario of GST, the matter of input credit and transitional credit post GST registration has become a pain in the neck of GST authority, and more deplorably, a peck of troubles for all the entrepreneurs.

On one of their nocturnal outings, Vikram & Vetal were busy mulling over the crises faced by the small traders in India. Riding on Vikram’s shoulders, Vetal uttered softly into his ears-

“The small-scale traders are living in woo of intimidation about the utter rejection of their input credit claims.”

After a short-while he carried on, “Very appallingly, what’s becoming a serious headache for the tax authorities is the amassing of transitional credit, much higher than the regular input tax credit. Presently, the total amount claimed nationwide by way of transitional credit amounts to INR 1.5 trillion!” Vikram, who was, as usual, in the vow of silence, showed signs of perplexity at such technical jargon used by his companion.

Vetal quickly discerned Vikram’s naivety, so he explained to him-


#1. What is Transitional credit?

Vetal: Post implementation of GST, there were numerous taxpayers who had tax credit pertaining to the purchases of raw material purchased during erstwhile VAT regime, which they had to claim before going through GST registration procedure. Such tax credit that was accrued under the previous tax regime is referred to as Transitional credit.

Through his telepathy with Vikram, Vetal was able to perceive his queries. He answered them one-by-one.


#2. Why is Transitional credit a problem for small traders?

Vetal: A sudden change in tax laws induced improbability among the traders regarding the refund of the Transitional credit they had claimed. It was added by the tax experts that there was no guarantee of approval of such Transitional credit by GST authority, on assessing the accounts at the end of FY 2017-18.


#3. Why is the government not taking into account the problem of Transitional credit?

Vetal: It’s not so Vikram! As government sought to merge numerous taxes into one, it felt the necessity to have transitional provisions as to guarantee that transition to the new tax regime through GST registration is hassle-free and no tax benefits go in vain. Thus, the following transition provisions were introduced:

  • Relating to Input Tax Credit

  • Continuance of some old procedures such as job work for a certain period without any adverse impact of GST law

  • Provisions for all claims (pending and probable) filed before GST regime.



#4. What is the cause of uncertainty of getting Transitional credit?

Vetal: Friend! The process of filing claims is based on self-declaration. The government has assured of introducing technical accounting procedures such as matching of invoices, but such measures are yet to be implemented. It is very important that the credit balances shown in the individual and company accounts are correct.

Besides, if the tax returns are not duly filed, it may lead to cancellation of the tax credit during the audit.


#5. How many taxpayers have duly undergone GST Return Filing procedure?

Vetal: Currently, 69% of the taxpayers have duly filed GSTR-3B. Thus, a large chunk of Transitional credit claims is on the brink of negligence.


Here Vetal took a pause. Staring judgmentally at Vikram, he said-

“O wise Vikramaditya! Now that you have understood the whole scenario, you are supposed to answer my question. And if now you remain silent, you will freeze at once!”

Then he placed his question-


#6. How to deal with the problem of blockage of Transitional credit?

Vikram: In my opinion, the taxpayers can treat such doubtful tax credit as a contingent liability. Moreover, disallowing of tax credit can be annoying only for those companies who have filed exaggerated and indiscreet credit claims. To the best of my knowledge, GST council has discontinued the need to file separate refund forms to match claims of buyers & suppliers. The assessees can duly file the simplified summary return, GSTR-3B, avail the credit without matching any claims.


Vetal: That’s the perfect solution, Vikram! As always, I’m impressed with your wisdom.

And with that, Vetal again fled, as Vikram had broken his vow of silence.

But you don’t worry at all!!


If you have any doubt regarding Online GST registration procedure or GST return filing, feel free to contact us at 8881-069-069.




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