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Matching, Reversal and Reclaim of ITC

By AJ

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Updated on: Feb 16th, 2024

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6 min read

It is easy to guess that you are not fully GST compliant unless your ITC claims are in place. It is beneficial if businesses may have access to a report which specifies what % of their credit is unmatched and they’ll have to work with suppliers to minimise the gaps.

Latest updates

1st February 2022
Budget 2022 update-
Sections 42, 43, 43A on matching and reversal of ITC provisions are removed by the virtue of the removal of provisional ITC in the Finance Bill 2022.

What does a mismatch in credit mean for issuing scrutiny notices?

Several taxpayers are concerned about the issues around the non-availability of credit.
Here’s basically what mismatched credit means –

  • Differences between the amount of credit shown in GSTR- 3B and GSTR-2B or GSTR 2A
  • Discrepancies between GSTR-3B and GSTR-1

Any differences noticed between these returns will lead to scrutiny notices being issued to the taxpayers.

Modes of communicating differences noticed in the returns by officers

Any difference noticed by the authorised officer shall be communicated to the concerned person in Form GST ASMT-10. Contents of the form:

  • Observations of the officer
  • Time available to the taxpayer to give his explanation in response to this notice.
  • Tax amount that is different and is the reason for the discrepancy may or may not be mentioned in this form.

Actions available to taxpayers who receive notice

Response to GST Notice

View Form GST ASMT-11  
View Form GST ASMT-12

Any differences between your monthly/quarterly/yearly GST returns? 
 

Clear is a one-stop solution for various taxpayers regarding these notices:

  • GSTR 3B Vs GSTR 1 report is generated to help customers know about any differences connected to payment of taxes on all outward supplies
  • A comparison report between GSTR 3B and GSTR 2B is generated. This helps to be sure that the credits claimed are related to taxes actually paid by the suppliers.
  • The invoicing cum filing platform fastens the invoice generation and return filing process with accuracy. Invoices created via ClearTax help in auto preparation of the GST returns and thus the chances for errors get reduced to almost nil.
  • Multiple validations connected to GST are done. Checks of HSN code, tax rate. GSTINs, Place of supply, date format, deadline checks, etc, help in better compliance of requirements and early detection of any mismatches.

These smart reports help to capture ITC leakage before it impacts your tax payments and working capital.

Rectification of discrepancies

If a discrepancy arises, it can be rectified in the following ways:

Excess ITC claimed w.r.t. declaration by a supplier or outward supply is not declared by the supplier:

  • In case of discrepancy of claim w.r.t. declaration by supplier in his valid return, such discrepancy shall be communicated to supplier and recipient. On receipt of such a communication, the supplier shall be asked to rectify the discrepancy in his valid return for the month in which discrepancy is communicated.
  • If the supplier does not rectify the discrepancy, the excess ITC claimed earlier shall be added to the output tax liability of the recipient in the next month

For example: If the discrepancy is communicated in the month of July and not rectified by supplier, then the ITC claimed earlier shall be added to the output tax liability of the recipient for the following month of August.

Duplication of the ITC claim by recipient:

  • In case of a duplication of claim, the recipient will be intimated about the duplication of claim. If a rectification is not made, then the ITC claimed earlier shall be added to the output tax liability of the recipient for the month in which duplication communicated

matching and reversal of ITC

For example: Assuming that the intimation about the duplicate claim was sent in the month of July, the ITC claimed earlier shall be added to the output tax liability of the recipient in the month of July itself if the rectification is not made in time. 

In case of additions, the recipient shall be required to pay an interest not exceeding 18% on the amount added to the output tax liability from the date of availing the ITC till the additions are made in returns.

Re-claim of ITC

  • It means re-claiming the amount of ITC which was earlier reversed due to discrepancy in amount declared by supplier in his valid return or duplication of the ITC claim. Such re-claims can be made by the supplier only in case the supplier declares the details of invoice and/or debit notes in his valid return pertaining to the period in which the omission or incorrect particulars were noticed by the supplier, or the communication about the same was received.
  • Any interest paid earlier on excess claim of ITC will be refunded by crediting the amount to the recipient’s Electronic Cash Ledger.
  • In case of duplication of ITC claim, no refund will be allowed as it is a contravention of the GST provisions.
About the Author

DVSR Anjaneyulu, known by the name AJ, I've got a vast experience in accounting, finance, taxes and audit. I'm always keen to simplify laws for the readers and learn about the Indian finance ecosystem. I also love listening to music, travelling, and, most importantly, conversing with people to better understand the world.. Read more

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Quick Summary

It is crucial for businesses to ensure their ITC claims are accurate for GST compliance. Recent updates include removal of provisions related to ITC mismatch in the Finance Bill 2022. Mismatched credit between GSTR-3B, GSTR-2B, or GSTR-1 can lead to scrutiny notices. ClearTax offers reports to detect discrepancies and rectify them by communicating with suppliers and recipients.

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