Understanding Input Tax Credit Reconciliation, Reversal, and Reinstatement

Achieving full GST compliance necessitates accurate Input Tax Credit (ITC) claims. Businesses benefit significantly from reports detailing unmatched credits, enabling them to collaborate with suppliers to resolve discrepancies.

As of February 1, 2022, the Budget 2022 introduced significant changes. Sections 42, 43, and 43A, which governed the matching and reversal of ITC provisions, have been eliminated due to the removal of provisional ITC claims in the Finance Bill 2022.

Implications of Credit Mismatch for Scrutiny Notices

Taxpayers often face concerns regarding credit unavailability. A credit mismatch primarily refers to:

• Variations between the credit amounts reported in GSTR-3B and GSTR-2B or GSTR-2A.
• Discrepancies observed between GSTR-3B and GSTR-1 filings.

Such variances identified between these returns can result in scrutiny notices being issued to taxpayers.

Communication Methods for Noticed Return Differences

When an authorized officer identifies discrepancies in returns, the taxpayer receives communication via Form GST ASMT-10. This form typically includes:

• The officer's observations regarding the discrepancies.
• The deadline for the taxpayer to provide an explanation or response to the notice.
• Optionally, the differing tax amount causing the discrepancy may also be specified.

Taxpayer Actions Upon Receiving a Notice

Upon receiving a scrutiny notice, taxpayers have recourse options. They can view and prepare responses using Form GST ASMT-11 or Form GST ASMT-12, as appropriate for their situation.

Rectifying Discrepancies

Should a discrepancy be identified, there are several methods for its rectification:

Excess ITC Claimed Versus Supplier Declaration

When an ITC claim discrepancy relates to a supplier's declaration in their valid return or an undeclared outward supply, both the supplier and recipient are notified. Upon receiving this communication, the supplier must correct the discrepancy in their valid return for the month the notification was sent.

If the supplier fails to rectify the issue, the previously claimed excess ITC will be added to the recipient's output tax liability in the subsequent month. For instance, if a discrepancy is communicated in July and the supplier does not correct it, the ITC will be added to the recipient's output tax liability for August.

Duplicate ITC Claim by Recipient

If a recipient makes a duplicate ITC claim, they will be informed of this duplication. Should no rectification occur, the previously claimed ITC amount will be added to the recipient's output tax liability for the month in which the duplication was communicated. For example, if a duplicate claim intimation is sent in July and not corrected promptly, the ITC will be added to the recipient's July output tax liability.

Furthermore, in cases where additions are made, the recipient will incur interest, not exceeding 18%, on the added amount, calculated from the date of availing the ITC until the adjustments are reflected in the returns.

Reinstatement of Input Tax Credit

Reclaiming ITC involves reinstating an amount of input tax credit that was previously reversed, either due to discrepancies in a supplier's valid return declaration or as a result of a duplicate ITC claim. Such reinstatements are permissible only if the supplier accurately declares invoice and/or debit note details in their valid return for the period when the omission or incorrect information was identified, or when notification of such was received. Any interest previously paid on an excess ITC claim will be reimbursed by crediting the amount to the recipient's Electronic Cash Ledger. However, in instances of duplicate ITC claims, no refund will be issued, as this constitutes a violation of GST regulations.