Input tax credit (ITC) is the credit a registered taxpayer can claim for the tax paid on the purchases made for business purposes. Matching, reversal, and reclaiming of input tax credit refer to the process of reconciling the ITC claimed by the taxpayer with the tax liability payable to the government.
Matching refers to the process of matching the ITC claimed by the taxpayer with the details of the outward supplies added by the supplier in their GST/VAT return. This ensures that the supplier has correctly reported the sales made to the taxpayer and that the taxpayer has rightfully claimed the ITC.
Reversal refers to the process of reversing the ITC claimed by the taxpayer in the case the supplier fails to verify the details of the outward supplies or reports incorrect details in their GST/VAT return. This prevents the taxpayer from claiming ITC that is not due to them.
Reclaim refers to the process of reclaiming the ITC that the taxpayer reversed. This can happen if the supplier reports the correct details of the outward supplies in their subsequent GST/VAT return or if the taxpayer proves they are eligible for the reversed ITC.
Any discrepancy discovered by the authorised official must be reported to the relevant person using Form GST ASMT-10. The form consists of:
The beneficiary will be informed if a claim has already been submitted and is duplicated. The ITC will be added to the recipient’s output tax due for the month the duplication was communicated if the correction is not made.
If there are additions, the recipient will be obligated to pay an interest of 18% from the day the ITC was claimed until the additions were made in returns on the amount added to the output tax due.
Reclaiming the ITC involves recovering the amount previously reversed due to discrepancies in the supplier’s declared amount of duplicate ITC claims. Only the supplier can make such reclaims by providing the details of invoice and/or debit notes in their valid return for the relevant period in which the incorrect details were noticed. Any interest paid earlier due to excess ITC claims will be refunded to the recipient’s electronic cash ledger. However, if the ITC was claimed for duplication, no refund will be processed.
Matching, reversal, and reclaiming of Input Tax Credit (ITC) are essential processes in the GST system. Timely and accurate matching of ITC helps prevent fraud and errors, while the reversal of ITC is necessary in cases where the taxpayer is not eligible for the credit. Reclaiming of ITC is possible if the taxpayer has rectified the issues leading to the reversal. Proper compliance with the regulations outlined by the government is crucial to ensure a smooth and hassle-free ITC process.