Claim and Matching, Reversal and Reclaim of Input Tax Credit (ITC)

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(A) Provisional Acceptance of Claim of Input Tax Credit (ITC) [Section 41]

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger

(2) The credit referred to in section 41(1) shall be utilised only for payment of self- assessed output tax as per the return referred to in the said sub-section.

(B) Matching, Reversal and Reclaim of Input Tax Credit (ITC) [Section 42 except the Proviso to Sub-section (9) of the Section]

(1) Matching of Inward Supply of the Recipient with the Outward Supply of the Supplier [Section 42(1)] :

The details of every inward supply furnished by a registered person (i.e. the “recipient”) for a tax period shall, in such manner and within such time as may be prescribed, be matched—

  1. with the corresponding details of outward supply furnished by the corresponding registered person (i.e. the “supplier”) in his valid return for the same tax period or any preceding tax period,
  2. with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him; and
  3. for duplication of claims of input tax credit.

(2) Matching of the Input Tax Credit (ITC) Claimed for Inward Supply with corresponding Outward Supply and acceptance thereof [Section 42(2)] :

The claim of input tax credit in respect of invoices or debit notes relating to inward supply that match with the details of corresponding outward supply or with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him shall be finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the recipient.

Matching of inward supply and input tax credit would be done only after the due date of furnishing of GSTR 3. ITC taken provisionally by the recipient on the basis of GSTR-2 will be matched by the system—

— with the details of outward supplies furnished by the supplier in GSTR 3 (filed by 20th of the month following the relevant month);

— with the IGST paid on the goods imported by him;

— for any duplication of claims of ITC.

(3) Discrepancy in Input Tax Credit (ITC)  [any to be communicated [Section 42(3)] :

Where the input tax credit claimed by a recipient in respect of an inward supply—

— is in excess of the tax declared by the supplier for the same supply or

— the outward supply is not declared by the supplier in his valid returns.

the discrepancy shall be communicated to both such persons in such manner as may be prescribcd

(4) Duplication of Claims of Input Tax Credit (ITC) to be communicated to the Recipient [Section 42(4)] :

The duplication of claims of input tax credit shall be communicated to the recipient in such manner as may be prescribed.

(5) Amount of Discrepancy not Rectified to be Added to Output Tax Liability’ of Recipient [Section 42(5)] :

The amount in respect of which any discrepancy is communicated under section 42(3) and which is not rectified by the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the month in which the discrepancy is communicated.

(6) Excess on account of Duplication of Claims to be Added to the Output Tax Liability of the Recipient [Section 42(6)]:

The amount claimed as input tax credit that is found to be in excess on account of duplication of claims shall be added to the output tax liability of the recipient in his return for the month in which the duplication is communicated.

(7) Reduction from Output Tax Liability if the Discrepancy’ is Corrected by the Supplier in his Return [Section 42(7)] :

The recipient shall be eligible to reduce, from his output tax liability, the amount added under section

42(5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in sub-section (9) of section 39.

(8) Interest Payable on Addition in Output Tax Liability [Section 42(8)] :

A recipient in whose output tax liability any amount has been added under section 42(5) or section 42(6), shall be liable to pay interest at the rate specified under section 50(1) on the amount so added from the date of availing of credit till the corresponding additions are made under the said sub-sections.

Any discrepancy arising out of the verification (“matching”) against a supplier’s return of outward supplies will be communicated to the supplier, who will get a chance to rectify it while tiling GSTR 3 for the month in which discrepancy has been communicated. If he does not do this, then under section 42(5), the amount of credit taken will be added to the output tax liability of the recipient in his return for the month succeeding the month in which the discrepancy has been communicated, and he has to pay the same with interest @ 18% from the date of taking the credit. Thus, in effect, the ITC can be taken provisionally for 2 months.

(9) Interest paid on Additional Output Tax Liability to be Refunded if there is a Reduction under Section 42(7) [Section 42(9)] :

Where any reduction in output tax liability is accepted under section 42(7), the interest paid under section 42(8) shall be refunded to the recipient by crediting the amount in the corresponding head of his electronic cash ledger in such manner as may be prescribed:

Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the supplier.

(10) Wrong Reduction from Output Tax Liability will also attract Interest [Section 42(10)] :

The amount reduced from the output tax liability in contravention of the provisions of section 42(7) shall be added to the output tax liability of the recipient in his return for the month in which such contravention takes place and such recipient shall be liable to pay interest on the amount so added at the rate specified in section 50(3).

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