FAQ on ITC under Goods and Services Tax

Input Tax Credit under GST, shortly and more popularly known as ITC, is defined under section 2(63) of the Central Goods and Services Tax Act, 2017. ITC simply means the credit of input tax.

According to the provisions of section 16(1) of the Central Goods and Services Tax Act, 2017, every registered person is eligible to avail of the ITC provided all the specified conditions are satisfied.

Conditions to be satisfied for availing of the ITC are prescribed under section 16(2) of the Central Goods and Services Tax Act, 2017. Accordingly, the registered person, in order to avail of the ITC, is required to satisfy all the following five conditions –

• The registered person should have the relevant tax invoice or debit note or any other tax paying document, as issued by the supplier, against which ITC is to be availed;
• Relevant details of tax invoices or debit notes or any other document should have been furnished by the supplier via GSTR 1 return filing . Correspondingly, the same should be communicated to the recipient via Form GSTR-2B;
• The recipient should have received the respective goods or services;
• The tax charged, in the relevant tax invoice or debit note, should have been paid to the Government by the supplier; and
• Required return under section 39 should have been furnished.

Vide clause 100 to the Finance Act 2022, the sixth condition is inserted into section 16(2). According to the newly inserted condition, the input tax credit reflected in GSTR 2B Form should not be restricted under provisions of section 38 of the Central Goods and Services Tax Act, 2017.

It is important to note that the effective date of the sixth condition is not yet notified.

ITC mismatch means the amount of Input Tax Credit availed and reflected by the registered person in Form GSTR-3B doesn’t match with the amount of Input Tax Credit reflected in the auto generated statement in Form GSTR-2B.

Earlier there were two auto generated statements, namely Form GSTR-2A and Form GSTR-2B which reflected input tax credit available to the registered person. However, with effect from 1st January 2022, it is amply clear that Form GSTR-2B is to be taken as the base for matching of ITC.

As we know, under GST, the registered person is required to furnish various returns. Hence it is important to note down the returns which are relevant for periodical matching of ITC.

The following two returns are relevant for ITC matching under GST-

• Form GSTR 3B to be filed as per provisions of as per provisions of section 39(1) read with rule 61 of the Central Goods and Services Tax Rules, 2017; and
• Form GSTR-2B, an auto-generated statement, as per provisions of section 37(1) read with rule 60(7) of the Central Goods and Services Tax Rules, 2017.

Going through the following two provisions it will be clear that the registered person is mandatorily required to match up the ITC –

• Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017 covers the mandatory condition that the registered person needs to satisfy for availing of the ITC. According to it, ITC is available only if the same is communicated to the recipient in Form GSTR-2B; and
• Rule 36(4) of the Central Goods and Services Tax Rules, 2017 states that the registered person will not able to avail of the ITC unless the same is communicated to the registered person in Form GSTR-2B.

Now, as we know, as per section 39 of the Central Goods and Services Tax Act, 2017, every normal registered person is required to furnish Form GSTR-3B, wherein, they mention the details of input tax credit availed for the respective period.

Co-relating both the above, it will be clear that the eligible ITC for registered person is to avail only those ITC in Form GSTR-3B which is reflected in Form GSTR-2B.

There can be various reasons for ITC mismatch. Some of the probable reasons for facing ITC mismatch in Form GSTR 3B vs Form GSTR 2B are highlighted hereunder 

• The recipient has done some errors in calculating ITC; or
• The recipient has erroneously omitted in considering some tax invoice/ debit notes; or
• The supplier has wrongly reflected the transaction as inter-State instead of intra-State or vice-versa; or
• The supplier has done some mistake while entering the GSTIN of the recipient; etc.

In case there is a mismatch between the input tax credit availed in Form GSTR-3B and the input tax credit reflected in Form GSTR-2B, the registered person should follow probably narrated below steps –

STEP 1 – Avail input tax credit in Form GSTR-3B as per the amount of input tax credit reflected in Form GSTR-2B. Reason being that the registered person is not allowed to avail of the input tax credit which is not reflected in Form GSTR-2B;

STEP 2 – Reconcile and figure out the reasons for the difference;

STEP 3 – Point out the reasons to the relevant supplier and ask him to correct the same while file GST return in the future period.

In case there is any ITC mismatch, the registered person will be able to avail of the ITC only to the extent the same is reflected in auto-generated statement in Form GSTR-2B. The same will result into the higher need for the working capital and blockage of funds.

With a view to stringent the fraudulent practice, the Finance Act, 2022 had come up with two new strict provisions relevant to ITC matching. The same is explained hereunder -

• Insertion of the sixth condition for availment of ITC [section 16(2)(ba)] – According to which ITC should not be restricted under provisions of section 38.
• Substitution of provisions of section 38 –
  According to which ITC will be restricted under the following circumstances-

1. The registered person has obtained registration under GST within a prescribed period; or
2. The registered person has defaulted in tax payment and such default continuous for the prescribed period; or
3. The registered person has output tax payable in excess of output tax paid by the prescribed limit; or
4. The registered person has availed input tax credit in excess of input tax credit available by the prescribed limit; or
5. The registered person has defaulted in discharging the tax liability; or
6. The registered person is covered within the prescribed class of person.