Adjustment of Input Tax Credit under GST


Date: 31 Jan 2023

Adjustment of Input Tax Credit under GST


Regardless of turnover, every registered GST taxpayer must submit an annual GSTR-9 form. Since the annual return uses the data from GSTR-1 and GSTR-3B, these forms must be filed first. Incorrect information in GSTR-1 or GSTR-3B can't be corrected in GSTR-9, which is for data aggregation only. Nevertheless, an entity’s book of accounts must correspond with the returns filed. This can be maintained by reconciling the returns. 


Why is it necessary to reconcile the returns with the book of accounts?

  1. Prevent missing out on claiming ITC: Sometimes, businesses forget to document the invoices they receive. Reconciliation helps in ensuring that the available ITC is claimed timely. 

  2. Maintaining internal control: Strong control is maintained within the organisation when the book of accounts matches the filed returns. Reconciliation guarantees that discrepancies in the taxpayer's books of accounts are fixed timely. 

  3. As a part of the audit process: The book of accounts and GSTR-2B or GSTR-2A make it easier for the auditor to compare the inward supplies and ask the taxpayer to correct any discrepancies. Therefore, taxpayers should reconcile the two regularly and have the data on hand for audit.

  4. Avoiding mismatches will help you avoid receiving notices from the tax department, which could result in paying penalties. Monthly reconciliation and appropriate action on data mismatches are essential to preventing the same.


What should be done if the credit in GSTR-2B or GSTR-2A is "Excess/Less" than GSTR-3B?

Reconciling the returns GSTR-2B or GSTR-2A and GSTR-3B has become crucial under the GST Law since the taxpayer can only claim ITC on a specific invoice if that invoice is present in the returns GSTR-2B or GSTR-2A.


The Department can use this idea of matching to check that all transactions that took place within a specific time period are accurately recorded and submitted in the summary return GSTR-3B. The following table outlines what to do if there are discrepancies:






Excess credit is declared


The recipient in GSTR-3B does not claim ITC.

He should claim the missing ITC in the month in which the discrepancy is identified.

The supplier has shown excess outward supplies in GSTR-1.

He should rectify the same in GSTR-1 of the month in which the discrepancy is identified.

Less credit is declared


The supplier failed to upload the invoice.

The supplier is asked to rectify the same in the return of the month in which the discrepancy is identified. If the supplier fails to do so, the ITC claimed by the recipient gets added to the output tax liability in the next month.

Duplicate credit claimed by the recipient in GSTR-3B.

No further action is required if the recipient has already corrected the same. If not, the excess ITC claimed is added to the output tax liability of next month.


In both of the above situations, the GSTR-9 must include a justification of the differences between the ITC information from GSTR-2A and GSTR-3B under the following two headings:

  • Table 8E: Available but unused ITC

  • Table 8F: ITC available but invalid


What must be done if the credit listed on GSTR-2B/3B does not match the books of accounts?

In this situation, a taxpayer must carry out the next two reconciliations:


A reconciliation amongst GSTR-2A/2B and books of accounts

Since the data included in GSTR-2A/2B is provided by the vendors, the reconciliation will require dynamic information.  The data changes each time a vendor submits a GSTR-1 or modifies it, requiring a new reconciliation.


Step 1: Determine which invoices were only entered into the books of accounts and not on the GST portal and which invoices were only accessible through the portal (GSTR-2A) and were not recorded in the books.


Step 2: This invoice discrepancy may occur for any of the reasons listed below:

  • Although the supplier did not include invoice information in GSTR-1, the recipient did and claimed the ITC in GSTR-3B at a later date when the supplier uploaded the invoice.

  • ITC claim that was duplicated in the recipient's books of accounts.

  • The supplier's inability to file GSTR-1 or use the incorrect GSTIN when filing GSTR-1.

  • Because of an invoice's recording's timing discrepancy.


Step 3: Take action against such mismatches, as mentioned in the above table. 


Reconciliation amongst GSTR-3B and accounts book

A reconciliation between GSTR-3B and the accounts book needs static data, which must be prepared and recorded by the entity itself. 


Step 1: Verify that each Payables ledger for each GST challan the organisation has paid is accurately documented.


Step 2: Compare the ITC reported in GSTR-3B to what is listed in the books of accounts. Pass a corrected entry if there is a mismatch.


Step 3: Check the output of the GST reported in GSTR-3B to the output reported in the books of accounts. Pass a corrected entry if there is a mismatch.


Step 4: Verify the Trial Balance with the Electronic Credit Ledger.


Step 5: Correct any mistakes in GSTR-3B in subsequent months' returns.