wrongly Claiming of Input Tax Credit

Without valid ITC claims, it is simple to assume that you are not entirely GST compliant (Instead of GST compliant, we can say revenue loss due to paying GST via cash). It is advantageous for firms to have access to a report that shows the percentage of their mismatched credit since they will need to collaborate with suppliers to close any gaps. Article briefly explains on wrongly claiming of input tax credit, mismatch between GSTR 2B vs 3B, conditions and eligibility for wrong claim of ITC.

The basis of GST is the seamless flow of input tax credit (ITC) across the supply chain (from the origin of the goods/services to the customer). This must be checked using the matching concept, which allows false claims to be discovered and reversed.

Thus, the ITC claimed by the company would be compared to the supplier by the provider in his return, and any discrepancy would be disclosed to both the supplier and the receiver.

According to books, scenario

Month

ITC as per Books

ITC as per GSTR- 3B

Remark



Books

GSTR-2B



Invoices, according to books, matching with GSTR 2B for the same month.

May

1000

1000

1000

As Books = GSTR 2B

Few Invoices as per books, but not reported in GSTR 2B

May

1000

1000

800

ITC of Rs.200 can be claimed when it is reported in GSTR-2B

The following examples will help you understand the interest applicable to mismatched ITC:

B Ltd, a manufacturing business, has claimed ineligible credit for food and drinks under section 17(5) of the Act. They claim excessive ITC due to miscommunication with the vendor. But they have received notice from the department regarding the same. Now B ltd has to return this excessive credit with interest.

What is the current interest rate for B Ltd?

In this instance, B Ltd claimed ineligible ITC that was not covered by sections 42(10) or 43(10) of the Act. Accordingly, the applicable interest rate is 18%, as established in section 50(1) of the Act.

Furthermore, as per Section 42 of the CGST Act 2017, any difference that emerges, either as a result of excess credit claimed by the receiver or because the corresponding supplier fails to submit information of such supply in his return, would be reported to both the supplier and the recipient by GST department.

If the error is not corrected, the ITC must be returned by the receiver, with interest at 18% per section 50. (1). If the supplier reports the specifics of such supply in his return filed within the statutory time limit, the receiver can lower the amount thus contributed in his tax due, and the interest paid will be repaid.

What does a credit mismatch means?

Many taxpayers are concerned about the problems related to the lack of credit availability. Mismatched credit mainly refers to the following:

  • Differences between GSTR-3B and GSTR-1 or/and any other differences between these returns would result in inspection notifications being sent to the taxpayers.
  • Differences between the amount of credit indicated in GSTR-3B and the GSTR-2B
  • Differences between GSTR 2B  vs GSTR 3B
  • The difference between GSTR 2B vs Books

Mismatches issues may also occur when a taxpayer provides the same information in two different returns filed for different purposes.

Claiming of Input Tax Credits : Key Factors

We advise using our goods as a one-stop solution for various taxpayers concerning these notices. Using GSTHero:

  • The purpose of the GSTR 3B vs GSTR 1 report is to inform consumers of any variations related to the payment of taxes on all outgoing shipments.
  • A comparison report between GSTR 3B and GSTR 2B is produced. It makes it easier to verify that the requested credits are connected to the taxes the suppliers have paid.
  • Creating invoices and filing returns is accelerated and accurate by the invoicing cum filing platform. In addition, by assisting in the automatic production of GST return filing, invoices produced using GSTHero eliminate the possibility of mistakes.
  •  There are several GST-related validations carried out. First, checks the tax rate and HSN code. In addition, GSTINs, the location of supply, date format, deadline checks, and other factors all contribute to improved compliance with standards and early identification of any inconsistencies.
  • Inward supplies matching concept 

    The system generates the Form GSTR2B return based on information from GSTR 1 of the supplier identifying outward supply. When the assessee's supplier files GSTR 1 in any given month, the information is recorded by GSTR2B, revealing the purchases. As a recipient, we can download our supplier's GSTR -1 report against us in the form of GSTR 2B. Therefore, the ITC claimed in GSTR 3B should ideally match the ITC available on purchases.

GSTR 2B vs 3B Mismatch: Four possible reasons

mismatch in GSTR 2B vs 3B
  • The supplier has not submitted invoices for which the receiver has already claim input tax credit in his GSTR 3B return by uploading the tax summary.
  • Recipient's ITC claim is for imported goods and services.
  • The recipient's ITC is for tax paid under the Reverse Charge Mechanism.
  • Suppose the recipient's claim for ITC is duplicate (explain with example). Then the recipient must reconcile the data from GST returns and confirm that the ITC claimed it is valid and permitted under the Act.

What challenges faces in GST reconciliation

One of the most significant challenges of manual reconciliation under GST is a lack of consistency for large firms.

Many small and medium-sized enterprises in India still prefer manual reconciliation over computerised reconciliation. However, reconciling your Purchase Registers against your GSTR-2B gets more difficult as the number of invoices increases. As a result, your company will no longer be eligible for Input Tax Credit under GST.

Some of the direct risks that your organisation faces while performing manual GST reconciliation are as follows:

  • There is a chance that an error will be introduced in your GSTR 9 annual return
  • Invoice number mismatches in your Purchase record vs invoices received from your supplier, as reflected in FORM GSTR-2B.
  • Invoice date mismatch because the dates of recording the invoices on the seller's and purchaser's sides diverge.
  • When the number of invoices rises, it takes a significant amount of time for the clerical team to reconcile and validate each invoice received from the supplier.

Using automated GSTR-2B reconciliation software to reconcile your GSTR-2B vs Purchase Records can save you time and provide you with a detailed report that shows the statement's inconsistencies and the valid ITC. You can also read more on GSTR 2B Recon vs Purchase here.

Input Tax Credit Checklist for claiming 100% ITC under GST

Claiming of Input Tax Credit
  1. Download GSTR-2B for your vendors  in 1 click.

    Before claiming Input Tax Credit, taxpayers should review their GSTR-2B for errors.

  2. Identify and contact your defaulting vendors.

    Failure to file your supplier's GSTR-1 forms might severely impact your Input Tax Credit and may hinder your working capital.

GST ITC claim with GSTHero assistance 

GSTHero's Reconciliation tool is a one-stop shop for all your Reconciliation requirements.

You may place your trust in us for:

  • Error elimination
  • Faster and more ersonalised reconciliation
  • Mismatches have a super-fast track record.
  • Our tool has a user-friendly interface and requires no experience to use.
  • Simple integration with Tally and other ERP systems

Read all our related articles

Conclusion

This post highlighted the significance of wrongly claiming of Input Tax Credit under GST.

To summarise, 'automated and regular reconciliations are required to claim 100% ITC under GST.'

GSTHero can help businesses with all of their reconciling needs. GSTHero is a government-approved GST Suvidha Provider. Therefore, the GST data is obtained directly from the GST network.

reconciliation

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

Sameep Mohite

About the author

Sameep Mohite is a computer engineer with a passion for GST. He has written many articles on GST, Finance, and Technology topics.

He is a GST expert who writes for GSTHero. He wants to ensure you know what you're paying for and why.

He enjoys explaining complex technical terms in primary, easy-to-understand language.

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