Concept of matching, reversal and reclaim of ITC
The persons registered under the existing state VAT Acts would be familiar with the concept of ‘matching principle of ITC’. In this the ITC claimed by the recipient of taxable goods and/or services is matched with the outward supply of taxable goods and/or services as claimed by the supplier.
This matching, reversal and reclaim of ITC amount is made available through the following steps:
- Details are obtained through valid returns filed by both supplier and recipient
- Matching and finding discrepancy
- Communication of discrepancy to both supplier and recipient
- Rectification of discrepancy
- Reclaim where discrepancy is rectified within the given timeframe
Let’s discuss the above-mentioned steps in detail:
Details are obtained through valid returns filed by both supplier and recipient
FORM GSTR-1 and FORM GSTR-2A
Details of outward supply of goods and/or services are filed by supplier in FORM GSTR-1, which would be available to recipient in FORM GSTR-2A
FORM GSTR-2 AND FORM GSTR-1A
Details of inward recipient of goods and/or services are filed by recipient in FORM GSTR-2, which would be available to supplier in FORM GSTR-1A for him to accept or modify the changes.
Monthly return to be filed by a registered person mentioning details of inward and outward supply of goods and/or services, ITC claimed along with taxes payable and paid thereof.
2. Matching and finding discrepancy
When FORM GSTR-3 is submitted by both the supplier and recipient, the following details are matched:
- GSTIN of supplier and GSTIN of recipient w.r.t. each supply and recipient
- Invoice number, Debit Note number, Credit Note number
- Taxable Value
- Tax amount involved
3. Communication of discrepancy to both supplier and recipient
In case the details furnished by both do not match, such discrepancies will be communicated to both the supplier and recipient, or just the recipient depending on the nature of discrepancy, after filing of FORM GSTR-3.
Discrepancy of ITC arises in the following situations:
∙ ITC claimed by recipient is in excess of the tax declared by the supplier, or
∙ the outward supply is not declared by the supplier, or
∙ there is a duplication of claim of ITC by the recipient
4. Rectification of discrepancies
If a discrepancy arises, it can be rectified in the following ways:
- Excess ITC claimed w.r.t. declaration by 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.
2. Duplication of claim of ITC 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
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.
5. 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.
For example: Mr. Anand, the recipient, files his FORM GSTR-3 on 18th September 2017, for the tax period of August 2017. On matching, a discrepancy is found in the inward supply furnished by him in FORM GSTR-2 for Rs 10,000. The ITC claimed on this is Rs. 1,200.
Now, this discrepancy is communicated to Mr. Anand and his supplier. The supplier refuses to make the rectification in his valid return. So, the availed ITC of Rs. 1,200 will be added to Mr. Anand’s output tax liability for the tax period of September 2017 and interest will be payable on this.
Now, if the supplier rectifies the discrepancy through debit note or invoice within the specified time frame, Rs. 1200 will again be allowed as ITC and the amount paid as interest will be refunded.
From the above discussion on matching, reversal and reclaim of ITC it is quite evident that claiming ITC will be a challenging task. However, the same time the feature of auto-population of details of inward supply will make the recipient as well as supplier more responsible and vigilant while filing returns.