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Matching, Reversal and Reclaim of Input Tax Credit (ITC)

Matching, reversal, and reclaim of Input Tax Credit (ITC) are important for taxpayers because it helps in claiming the accurate amount of ITC without any discrepancy. One can be considered as completely compliant to GST if their ITC claims are in place.


1. ITC Mismatch for Issue of Scrutiny Notices

Issues related to unavailability of Input Tax Credit (ITC) are some of the major concerns for several taxpayers in India. The basic meaning of mismatched ITC can be understood as:

  • Difference between the credit amounts disclosed in forms GSTR 3B and GSTR 2A
  • Discrepancies between forms GSTR 1 and GSTR 3B
  • Mismatch in the amount of claimed provisional credit and claimable actual credit (usually arises during transition stages)

Any of these mismatches which are noticed in returns will lead to issuance of scrutiny notices by officers to taxpayers.

2. Where Do Officers Communicate the Differences Noticed in Returns?

The discrepancies noticed by an authorized officer in the filed returns will be communicated to the respective taxpayer through Form GST ASMT-10. This form will include:

  • The officer’s observations
  • Available time in which the taxpayer has to explain his/her position in response to the said notice
  • The mismatched amount of tax and the reason for the discrepancy (optional)

3. What Actions Can Receivers of Notices Take?

Upon receiving the notice, taxpayers can accept the notice or reject the notice:

  • Accepting the Notice: The taxpayer will have to respond to the notice in Form GST AMT-11 within 30 days or in the time period mentioned in the notice (whichever is earlier). Acceptance of this response may be communicated by the government in Form GST AMT-12.
  • Rejecting the Notice: If the taxpayer does not reply to the notice, it will be considered as absence of explanation or justification on the part of the taxpayer. The taxpayer will be proceeded against by the government according to the law so as to recover the mismatched amount of ITC. The taxpayer may also be charged with an interest of 18% for wrongly claiming ITC.

4. Discrepancy Rectification and ITC Reversal

Any discrepancy which arises in returns may be rectified in the following manner:

  • Excess claim of ITC with respect to supplier’s declaration OR Supplier has not declared outward supply:
    • If there is a discrepancy in the ITC claimed with respect to the supplier’s declaration in returns, it will be communicated to the recipient and the supplier. On receiving the communication, the supplier will have to rectify the said discrepancy in valid returns.
    • In case, the supplier fails to rectify the discrepancy, the excess amount of ITC claimed will be added to the recipient’s output tax liability in the following month.
  • Duplication of ITC claim by recipient:
    • For any duplication of ITC claim, the recipient will have to face intimation about it. If the issue is not rectified then the previously claimed ITC will be added to the recipient’s output tax liability for the month when duplication was communicated.
    • In case of additions, the recipient will have to pay interest for a maximum of 18% on the amount which was added to the output tax liability from the date when ITC was availed to the date when additions in returns were made.

5. ITC Reclaim

ITC reclaim means reclaiming the ITC which was reversed previously because of a discrepancy in the ITC declared by the supplier in his returns or because of ITC claim duplication or because of GST rules. The supplier can only make ITC reclaim if the invoice and/or debit notes details are declared by him in the returns for the period in which the supplier noticed the discrepancy (omission or incorrect entries), or when such discrepancy was communicated by the officer to the supplier.

Any interest which was paid for mismatched ITC claimed previously will be refunded to the recipient’s Electronic Cash Ledger. However, no refund will be allowed in case of ITC claim duplication as it will be against the GST provisions.

GST Compliance