ITC Reconciliation

One of the basic reason behind the introduction of Goods and Services Tax is the availability of a seamless flow of Input Tax Credit under GST. However, ‘seamless flow of credit’ and taxable person under GST are sadly going through a complete roller coaster ride. Article briefly explain on ITC Reconciliation, GSTR2B Reconciliation Vs matching of books in ITC claim.

Input tax credit vis-à-vis Form GSTR-2B recently went into various important amendments both under the Central Goods and Services Tax Act, 2017 and Central Goods and Services Tax Rules, 2017. The same are highlighted hereunder

Provisions

Effective date

Explanation

Insertion of clause (aa) to section 16(2)

1st January 2022

The input tax credit is available only if the details of the respective invoice/ debit note are furnished by the supplier in Form GSTR-1 and the same is communicated to the recipient in Form GSTR-2B.

Substitution of sub-rule (4) of rule 36

1st January 2022

The recipient cannot avail of input tax credit unless the details are furnished by the supplier in GSTR-1 or via IFF in GST and such details are communicated to the recipient in Form GSTR-2B.

Insertion of clause (ba) to section 16(2)

Yet to be notified

The details of the input tax credit, as communicated via Form GSTR-2B, should not be restricted as per section 38.

Substitution of section 38

Yet to be notified

Details of outward supplies under GST furnished by the supplier and an auto-generated statement will be made available to the recipient. Notably, the auto-generated statement (Form GSTR-2B) will contain details of available and not available (restricted) input tax credit.

The above table appears to be somewhat puzzling, right? The above provisions sum ups, the clear intention of the Government, to allow the input tax credit to the recipient only to the extent of the input tax credit as reflected in auto-generated Form GSTR-2B.

The present article briefly explains all the conditions necessary to be satisfied by the recipient for availing input tax credit under GST; form GSTR-2B and reflecting ITC thereon and matching of books ITC with GSTR-2B and importance thereof.

We have detailed article on GSTR2B reconciliation we explained primary features of GSTR-2B cases where ITC remains unavailable in GSTR-2B

Input Tax Credit under GST : Conditions with Example

ITC under GST

The recipient of goods or services, needs to satisfy various conditions, for availing of the ITC in GST of goods or services. The following table figures out and explains all the said conditions –

Sr. No.

Relevant Section

Explanation thereof

Condition 1

Section 16(2)(a)

The recipient should have a relevant tax invoice or debit note or any other tax paying document issued by the supplier.

Condition 2

Section 16(2)(aa)

The details of said tax invoice/ debit note/ any other tax paying document are furnished by the supplier in Form GSTR-1. Further, such details should also be communicated to the recipient in Form GSTR-2B.

Condition 3

Section 16(2)(b)

The recipient should have received the said goods or services or both.

Condition 4

Section 16(2)(ba)

Such input tax credit is not restricted as per provisions of section 38.

Condition 5

Section 16(2)(c)

The supplier has paid the tax in respect of said goods or services to the Government either via electronic cash ledger or via electronic credit ledger.

Condition 6

Section 16(2)(d)

The supplier should have duly furnished a return in Form GSTR-3B.

Let us understand all the above conditions with the help of an example –

Mr. A (supplier) supplied goods worth INR 10,000 to Mr. B (recipient). It is an intra-State sale and goods fall under 12% tax slab (6% CGST + 6% SGST). Accordingly, Mr. A raised the tax invoice and charged INR 600 CGST and INR 600 SGST.

Hence, the amount of input tax credit available to Mr. B will be INR 1,200 (INR 600 CGST + INR 600 SGST). For availing of the input tax credit of INR 1,200, Mr. B needs to satisfy all the following conditions

Sr. No.

Relevant Section

Explanation thereof

Condition 1

Section 16(2)(a)

Mr. B should have received an appropriate tax invoice from Mr. A in respect of goods supplied.

Condition 2

Section 16(2)(aa)

Mr. A should furnish details of respective tax invoice in Form GSTR-1. Such details should also be communicated to Mr. B via auto-generated Form GSTR-2B.

Condition 3

Section 16(2)(b)

Mr. B should have received the said goods.

Condition 4

Section 16(2)(ba)

The input tax credit of INR 1,200 or part thereof should not be restricted as per provisions of section 38.

Condition 5

Section 16(2)(c)

CGST of INR 600 and SGST of INR 600 should have been paid by Mr. A to the Government.

Condition 6

Section 16(2)(d)

Mr. A should have furnished return in Form GSTR-3B.

Notably, for satisfying condition 4 [section 16(2)(ba)], one needs to go through the ‘Dracula’ provisions of newly inserted provisions of section 38 of the Central Goods and Services Tax Act, 2017.

Provisions of section 38 simply aggravate the availment of an input tax credit. Section 38 states that Form GSTR 2B will consist of

Part of Form GSTR-2B

Details thereof

Available Input Tax Credit

This part will cover details of all the input tax credit which is available to the recipient.

Restricted Input Tax Credit

This part will cover details of restricted input tax credit in terms of section 38(2)(b), as detailed hereunder –

  • The supplier has raised the invoice within such prescribed period of obtaining registration;
  • The supplier has defaulted in payment of tax for a continuous prescribed period;
  • The supplier has a short-paid output tax as compared to self-assessed liability for a prescribed time limit;
  • The supplier has availed excess input tax credit as compared to eligible input tax credit;
  • The supplier has defaulted in discharging the tax liability, wherein, the restriction has been placed.

GSTR-2B and reflecting of ITC

GSTR2B Reconciliation

If we go chronologically, firstly, Government came up with an auto-generated form GSTR-2A covering details of inward supplies as well as input tax credit of the taxpayer.

Accordingly, GSTR-2A enabled matching of the input tax credit as availed in the books of accounts of the taxpayer against the input tax credit as visible in the Government records.

We have previously write article on How to maintain accounts book through this we broadly explain the rules how to manage GST account

Later on, from August 2020, one more auto-generated form GSTR-2B was introduced. Form 2B also covered details of an available input tax credit of the taxpayer.

Due to the existence of two auto-generated forms i.e., GSTR 2A and 2B, a lot of confusion prevailed within the trade and industry regarding which form should be taken as the base for matching Input Tax Credit.

However, going through the following explanation, the taxpayer’s confusion will be completely crystal clear –

  • Provisions of rule 36(4) clause (b) of the Central Goods and Services Tax Rules, 2017 states that the input tax credit will be available to the recipient only if the relevant details are communicated in Form GSTR-2B as per rule 60(7);
  • Provisions 37(1) of the Central Goods and Services Tax Act, 2017 mandates the supplier to communicate the details of outward supplies of goods or services to the recipient in a prescribed manner and prescribed time;
  •  For the prescribed manner and prescribed time, one needs to refer to the relevant provisions covered under the Central Goods and Services Tax Rules, 2017. The following table explains the same

Particulars

Provisions

Explanation

Prescribed manner

Rule 60(7)

Form GSTR-2B, an auto-drafted statement, will be made available monthly to all the registered persons.

Prescribed time

Rule 60(8)

Form GSTR-2B will be made available after the due date of furnishing outward supplies details in GSTR 1 return filing form or via IFF. In nut-shell, Form GSTR-2B will be made available on the 14th of the succeeding month.

In nut-shell, all the above provisions, makes it clear that taxpayer needs to follow Form GSTR-2B for matching input tax credit.

Presently, since provisions of section 38 (as explained above) are yet not notified, the input tax credit is reflected in form GSTR-2B in the following manner –

S. No.

Heading

GSTR-3B table

Integrated tax

Central tax

State/ UT tax

Cess

Part A

ITC Available – Credit may be claimed in the relevant heading in GSTR-3B

I

All other ITC – supplies from registered persons

4A(5)

-

-

-

-

II

Inward supplies from ISD

4A(4)

-

-

-

-

III

Inward supplies liable for reverse charge

3.1(d)

4A(3)

-

-

-

-

IV

Import of Goods

4A(1)

-

-

-

-

Part B

ITC Reversals – Credit may be reversed in relevant heading in GSTR-3B

I

Others

4B(2)

-

-

-

-

Please note above table covers only the broad bifurcation of the input tax credit, however, GSTR2B return filing covers in-depth bifurcation as well.

ITC Reconciliation with GSTR-2B ITC and Importance 

ITC Reconciliation with GSTR2B

As per input tax credit availability condition stated under section 16(2)(aa) vis-à-vis rule 36(4), both made effective from 1st January 2022. Now, the input tax credit is available only if the same is reflected in GSTR-2B. Hence, it is mandatory to match input tax credit as per books and input tax credit as per GSTR-2B.

However, going through all the above provisions, it is amply clear that matching of books Input Tax Credit with GSTR-2B is not going to be simple. Tentative steps for matching the same are briefed hereunder
  1. Follow all the input tax credit availment conditions and figure out the available input tax credit;
  2. Download GSTR-2B by following the below steps
    STAP 1 : Visit the GST portal i.e., https://www.gst.gov.in
    STAP 2 : Login via the appropriate ‘Username’ and ‘Password’;
    STAP 3 : Navigate the path Services > Returns > Returns Dashboard;
    STAP 4 : Select the ‘Financial Year’ and ‘Return filing period’ from the drop-down list;
    STAP 5 : Click SEARCH;
    STAP 6 : You will be able to see ‘Auto- drafted ITC Statement GSTR-2B’ with options VIEW and DOWNLOAD;
    STAP 7 : Select ‘Download’. GSTR-2B download will be available in two formats

    • Generate JSON file to download – select this option to download data in JSON file; and
    • Generate Excel file to download – select this option to download data in an excel file.
  3. Compare input tax credit as per books and input tax credit as reflected in GSTR-2B;
  4. Carry out the adjustment in the books, if any, to match the input tax credit as reflected in GSTR-2B.

Synopsis

Condition covered under section 16(2)(aa) vis-à-vis rule 36(4) has made it clear that GSTR-2B is to be taken as base for availment and matching of input tax credit. Both the said provisions are made effective from 1st January 2022.

Try GSTHero GSTR 2B Reconciliation Tool for getting reports for internal and departmental audits with 100% accuracy.

Whereas, condition covered under section 16(2)(ba) vis-à-vis section 38 are going to create lot of pain to the taxpayer for availing full input tax credit. Both the said provisions are introduced vide the Finance Act, 2022, however, will be effective from the date yet to be notified.

Accordingly, the taxpayer needs to prepare themselves meticulously in order to win the game of availment of input tax credit under GST.

Claim upto 100% Input Tax Credit

Easiest GSTR 2B Reconciliation With Reverse ERP Integration

  • Identify defaulting suppliers 
  • 100+ validation checks for each invoice
  • Accurate GSTR 2A reconciled with purchase
  • Get every month’s GSTR-2A within seconds

CA Poonam Gandhi

About the author

Poonam Gandhi is a Chartered Accountant and a Lawyer. She is a Professional Freelance Content Writer/ Editor and an Educator.

She masters in creating result-oriented as well as Search Engine Oriented Content. Currently, she is associated with some of the topmost leading sites of India.

She holds more than 3 years of experience in the content field. Before entering the content writing field, she possessed a wide practice experience of more than 9 years, specifically, in the field of Indirect Taxation.

Follow us: