Input tax credit and GSTR-2B reconciliation

Input tax credit (ITC) lets you set off the GST paid on purchases against the GST you collect. It is not automatic. The credit must meet each of these conditions.

Conditions

• You hold a valid tax invoice or other prescribed document.
• You have received the goods or services.
• The supplier has paid the tax to the government and filed their return.
• You have filed your own return.
• The credit appears in your GSTR-2B (section 16(2)(aa)).

Time limit

Claim credit by 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier.

Blocked and reversed credit

• Blocked (Section 17(5)): for example motor vehicles for most uses, food and beverages, club memberships, goods for personal use, and construction of immovable property other than plant and machinery.
• Reversal: credit relating to exempt supplies (rules 42 and 43); credit where the supplier is not paid within 180 days of the invoice date (rule 37), which can be re-claimed on payment; and credit where the supplier has not paid the tax (rule 37A).
• Credit wrongly availed and used carries interest at 18% a year under section 50(3), and may attract penalty.

The Invoice Management System (IMS)

Since October 2024, invoices uploaded by your suppliers appear on the Invoice Management System on the GST portal. You can accept, reject or keep each invoice pending. GSTR-2B for a month is generated after taking these actions into account, so act on the IMS before you file GSTR-3B. A rejected invoice goes back to the supplier for correction; a pending one is carried forward.

Monthly reconciliation routine

1. Act on the IMS, then download GSTR-2B (generated on the 14th of the following month, and regenerated if you change IMS actions before filing).
2. Match each supplier invoice with your purchase register.
3. List invoices in your books but not in GSTR-2B, and ask suppliers to file or correct.
4. List invoices in GSTR-2B but not in your books, and check whether they are genuine and eligible.
5. Reverse credit that is blocked or ineligible.
6. Claim only what is eligible in GSTR-3B, and keep the reconciliation as a working paper.

Using the credit

Credit is applied in a fixed order across IGST, CGST and SGST. The credit utilisation tool shows how much cash is payable.

Read the complete GST guide for notices and appeals.