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GST – Process of matching of Input Tax Credit (ITC)

India is now ready for the GST implementation from 1st July 2017. GST in India is more unique than all other countries. Dual tax administration has been introduced under GST, keeping in mind of the federal tax system by the Indian constitution. IGST Concept on an interstate supply of goods and services has been introduced and a requirement of matching the input tax credit has been set as a most important procedure under GST Act, as it is difficult to track and invoice with input tax credit. Under the GST Act, apart of transferring the goods, there should be an actual passover of ITC (Input Tax Credit). This process will ensure that ITC can be only claimed if it has been confirmed by the counter party. The concept of matching ITC (input tax credit) has been introduced from Existing VAT Laws. ITC Can be only claimed if invoice of supplier  and recipient is matched. This is also invoice matching under GST

Following details/returns have to be furnished with goods or services, the following details need to be furnished as per the advisory from the GST Council.

GST Return form Responsible party Required declaration
GSTR-1 Supplier (Seller) Invoice wise details of outward supply
GSTR-2A Auto-populated from GSTR-1 Auto-populated based on supplier return
GSTR-2 Recipient In this form recipient can add or delete Input tax credit item
GSTR-1A Auto-populated by Supplier The supplier can amend or can add delete outward tax item as per the goods or services received by the recipient
GSTR-3 Supplier and recipient Matching of ITC only after due date of furnishing the return GSTR-1 & GSTR-2

  • Process of Matching ITC (Input Tax Credit)

After online submission of GSTR-3, the common portal will verify the GSTIN of the supplier, GSTIN of the recipient, invoice number or debit note number, invoice date or debit note date, the taxable value of supply goods or services, and the tax amount (separate details for CGST, IGST & SGST).

 The claim of ITC would be deemed as matched in the following case:

  • In respect of debit and invoices in a form which is accepted by the recipient on the basis of GSTR-2A without any amendment. The corresponding supplier will submit valid return.
  • When the recipient of goods or services has claimed the exact or less than the output tax of the supplier.
  • What is a meaning of the discrepancies in ITC under GST?

Discrepancies in ITC may be communicated by the recipient in GST MIS-1 when the ITC claim is in excess than the tax amount declared by the supplier or supplier has failed to declare the supply made to the recipient, and discrepancies in ITC can be reported by the supplier in GST MIS-2 if there is duplication in claim by the recipient.

  • How to rectify the discrepancies in a claim of ITC (Input tax credit)?

The rectification of the discrepancies can be either done by the supplier by filing correct outward returns and matching with goods or services received by the Recipient or Recipient on his own motion. The discrepancies may be deleted or correct the details of an outward supply matching with an outward supply can be made by the supplier.

  • Increase in GST Liability of the recipient if the discrepancies in ITC have not been sorted out by the Supplier.

If after communication by the recipient about the discrepancies in ITC, the supplier does not initiate any correction in such circumstances or the ITC amount extends to such discrepancies, it should be added to the output tax liability of the recipient. The additional tax liability along with interest will be applicable at the time of filing of GSTR-3.

  • A decrease in the tax liability of the recipient

The recipient output tax liability may be reduced when the supplier admits the invoice or debit note is claimed in the monthly return within the specified time period. When there is an admission of the tax liability by the supplier, then the recipient shall be entitled to a refund of excess tax paid along with interest. Interest will be added by the GST Department on account of a supplier.