DRC-01C Intimation under Rule 88D: ITC Mismatch GSTR-2B vs GSTR-3B

In the 50th GST Council meeting held on 11th July 2023, a new mechanism to deal with ITC mismatches between form GSTR-2B and form GSTR-3B was recommended. Accordingly, CGST Rule 88D was notified on 4th August 2023 vide CGST notification 38/2023 to allow GST system to send automatic intimations to taxpayers for major ITC discrepancies between these two returns.

GSTR-3B is a consolidated form that contains details of total inward and outward supplies, Input Tax Credit (ITC), tax paid and collected by a registered person during a specific tax period. On the other hand, GSTR-2B is a system-generated static form that provides information about ITC available on purchases and expenses during a tax period.

The DRC-01C is similar to the DRC-01B intimations for tax liability mismatches between GSTR-1 and GSTR-3B. Continue reading as discuss more about rule 88D ITC mismatch GSTR-2B vs GSTR-3B.

What is Rule 88D?

In the CGST Rule 88D, a mechanism is outlined for system-based notification of cases where the ITC claimed in GSTR-3B exceeds the prescribed available ITC amount in GSTR-2B by a certain percentage or amount.

Once these cases are identified, the taxpayers may be informed through a system-generated intimation form—DRC-01C on their GST portal login and email address as registered with the GST portal, drawing attention to the discrepancy. It is conveyed in part-A of DRC-01C.

The taxpayer must submit reasons for the excess ITC claim in part B of that form, and supporting documents (if any), or else pay towards the excess ITC. The action must be taken within seven days from receipt of intimation.

Tax authorities will then review the response to validate the ITC claim and take appropriate actions.

Reasons for mismatches between GSTR-2B and GSTR-3B

Despite being auto-populated and designed to align with each other, mismatches can occur between GSTR-2B and GSTR-3B, some may be genuinely a difference that can be reasoned with tax officer. Some reasons for the ITC reporting differences include:

• The supplier has wrongly furnished the figures (clerical error or GST rate error) and accordingly reflected in GSTR-2B.
• The supplier has wrongly reflected the transactions i.e., instead of business to business (B2B) the transaction is reflected as business to customer (B2C) and accordingly does not reflect in GSTR-2B.
• The supplier has wrongly furnished inter-state transactions as intra-state or vice versa, etc and has accordingly incorrectly reflected in GSTR-2B.
• Input tax credit not claimed in previous tax period/s for not receiving purchased goods or services in that tax period. It could also include cases of receipt of goods in instalments.
• Missed claiming input tax credit in the previous tax period/s.
• Input tax credit on import of goods, that do not appear in GSTR-2B.
• ITC claimed on inward supplies from SEZ, which do not appear in GSTR-2B.
• Excess ITC reversal in the previous tax periods reclaimed in the current tax period.
• Recrediting ITC upon making payment to supplier towards the invoice, where such ITC was reversed under the CGST Rule 37 in the earlier tax period.
• Recrediting ITC upon filing GSTR-1 by the supplier, where such ITC was reversed under CGST Rule 37A in the earlier tax period.
• The taxpayer files GSTR-3B with incorrect details and amends details in the next tax period (for typographical errors, wrong tax rates, etc.).

The effective date of the CGST Rule 88D

The 88D rule was recommended by the GST Council in its 50th meeting held on 11th July 2023. The meeting was chaired by the Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman.

Thereafter, it has been notified on 4th August 2023 through a CGST notification 38/2023. Accordingly, it shall be implemented from 4th August 2023.

The time limit for replying to DRC-01C

The time limit to respond to intimation is set to be seven days from the date of intimation. So, if a taxpayer wishes to pay the demanded tax with interest, they should deposit the amount in form DRC-03 and also respond confirming payment of tax in Part-B of DRC-01C within seven days.

Format of DRC-01C (Part-A and B)

Following is the format of Part-A of DRC-01C for Intimation as notified by the tax authorities:

Following is the format of Part-B of DRC-01C for reply as notified by the tax authorities:

How to reply to DRC-01C?

On the GST portal, after logging in, they can click on ‘Services’ tab and navigate to Returns > Return Compliance > DRC-01C. Search by return period, reference number or status of intimation and click on the particular intimation. part-A of DRC-01C for details of intimation.  Thereafter, take suitable action of paying excess ITC claim demanded with interest or give reasons for ITC difference. Respond by filling in the particulars of action taken (tax payment or reasons for ITC difference) and submit the form in Part-B of DRC-01C.

Consequences Of Not Complying With Rule 88D

Suppose the taxpayer who received intimation in DRC-01C but has not responded, he could be blocked from filing next period’s GSTR-1 and/or IFF (Invoice Furnishing Facility) as laid down by CGST Rule 59(6). Moreover, the notified CGST Rule 88D further states that the excess ITC claimed shall attract demand and recovery provisions of Sections 73 or 74 of the CGST Act, in short a demand notice and adjudication.

How to avoid DRC-01C?

It is pertinent to note that one must perform regular reconciliation of GSTR-2B with the ITC entries being reported in GSTR-3B and purchase register/books of accounts, before the return is filed. This exercise must be preferably automated to ensure faster, effective and efficient reconciliations as compared to manual setup. It will allow team to follow up with non-compliant vendors for timely reporting of invoices in corresponding GSTR-1/IFF.

The reconciliation should be done across tax periods as well to keep track of reversals and reclaims. So that, if the business receives any intimation in DRC-01C, the team can respond with the relevant reasons for a genuine ITC difference. Further, complete documentation and audit trail of ITC computations is advised henceforth to be well-prepared. Clear GST Max is your go-to solutions for maximising ITC claims and accurate GST return filing!