ITC reconciliation is the bridge between the purchase register and the GSTR-2B, adjusted for the reversals under Rule 37 (non-payment), Rule 42 (common credit), Rule 43 (capital goods) and Section 17(5) (blocked credit). The reconciliation is not a one-time annual exercise; it should be performed monthly, because the GSTR-3B ITC claim is the figure the department will scrutinise.
The GSTR-2B Bridge
The reconciliation should show, supplier-wise and invoice-wise: the ITC available in GSTR-2B, the ITC claimed in GSTR-3B, the difference, and the reason for the difference. The reasons include the supplier’s non-filing, the supplier’s reporting under a different GSTIN, the invoice not appearing in GSTR-2B, the credit note not reflected, and the ineligible ITC that was correctly not claimed. Each difference should be supported by a document.
The Reversal Categories
The reversal register should record each reversal separately: Rule 37 for non-payment within 180 days, Rule 42 for common credit attributable to exempt supplies, Rule 43 for capital goods, and Section 17(5) for blocked credit. The register should tie to the GSTR-3B Table 4(B) and to the credit ledger. A contemporaneous register is stronger evidence than a reconstruction after the notice.
The Notice Defence
An ITC notice typically alleges excess ITC by comparing the gross GSTR-3B claim with GSTR-2B and ignoring the reversals. The reply should provide the gross-to-net reconciliation and the reversal register. Where the notice alleges a supplier default, the reply should include the transaction evidence and the no-mechanical-reversal argument.
What the Consultant Does
The consultant performs the monthly reconciliation, maintains the reversal register and drafts the notice response. The value is in the documentation that converts a gross figure into a defensible net figure.
Call to Action: We advise businesses on ITC reconciliation, reversal registers and notice defence. For an ITC-review engagement, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.