ITC Reconciliation Under GST: Why Mismatches Between GSTR-2B and GSTR-3B Trigger Notices and How Businesses Can Resolve Them

Introduction

ITC reconciliation has shifted from a regular office task to one of the most closely observed areas of GST compliance in India. At its centre lies a simple but significant comparison between the Input Tax Credit a business is eligible for under GSTR-2B and what it actually claims in GSTR-3B. Whenever these two figures deviate, the department’s systems flag the return which can intensify into a scrutiny notice, a system generated intimation, or a full GST audit. This article deliberates upon the two returns, the common causes of mismatches, the portal-level hard-locking that now governs filing, consequences of non-compliance, the legal machinery used to act on discrepancies, and the reconciliation steps businesses should follow to avoid GST notices.

GSTR-2B & GSTR-3B

GSTR-2B is a monthly statement that shows the Input Tax Credit (ITC) available to a taxpayer for a given period of time. After the introduction of the Invoice Management System (IMS), every invoice, credit note, debit note, and Invoice Furnishing Facility (IFF) record uploaded by a supplier in GSTR-1 or GSTR-1A first emerges on the recipient’s IMS dashboard. The recipient has the options of accepting, rejecting, or keeping these records pending. Only the invoices which are accepted or deemed to be accepted are displayed as eligible ITC in GSTR-2B. Though the records received through GSTR-5 and GSTR-6 continue to be added directly to GSTR-2B. On the other hand, GSTR-3B is a self-declared summary return in which taxpayers report their tax liability, outward supplies, and the ITC claimed for the relevant tax period.

Although these two are meant to align with each other, they frequently do not. GSTR-2B is formed from supplier data and the recipient’s IMS decisions, whereas GSTR-3B was traditionally shaped by the taxpayer’s own assessment. That gap is now narrowing at the portal level. Outward-liability fields have been hard-locked since July 2025 tax period. From the July 2026 tax period, Table 4 ITC fields are expected to be system-driven from GSTR-2B and the recipient’s IMS actions, with significant restrictions on manual editing. This makes timely and accurate IMS action a precondition for claiming credit rather than just a post-filing exercise.

Mismatch Between GSTR-2B and GSTR-3B

• Supplier’s default: If a vendor does not file or save an invoice in GSTR-1, it will not appear in GSTR-2B, and the buyer cannot claim credit the supplier has not reported.
• Timing variations: A business may claim ITC in the month goods or services are received, while the supplier’s filing reflects it a period earlier or later.
• Blocked credit under Section 17(5): ITC on certain excluded expenses, such as motor vehicles, food and beverages, and some construction and works-contract services, cannot be claimed even for business use, and misunderstanding this often triggers GST notices and reversals.
• Reverse charge and imports: IGST paid on imports via Bill of Entry once sat outside ITC matching. Since October 2025, Bill of Entry records, including from SEZs, route through IMS for Accept, Reject or Pending action before credit enters GSTR-2B, import of services still flows in directly.
• Errors in data entry: Mismatched GSTINs, duplicate entries, or incorrect tax heads on either side create discrepancies between the two statements.
• Credit notes and amendments: A supplier altering a credit note after ITC is availed creates a variance. Under IMS, the recipient reverses only the ITC actually availed, not the note’s full value, and no reversal is needed if the ITC was never claimed.
• IMS action lapses: An invoice left un-actioned before the GSTR-2B cut-off (14th of the following month) is deemed accepted and enters GSTR-2B even if incorrect, while one marked Pending is temporarily excluded. Deemed acceptance can introduce incorrect credit into GSTR-2B, while Pending simply defers the invoice; both create reconciliation gaps that did not exist before IMS. 

Hard-Locking

Hard-locking marks the portal’s shift from advisory warnings to system enforced restrictions. Once a value is auto populated from source data, the taxpayer can no longer override it, and in defined situations the portal refuses to accept the return at all. 

The rollout has moved in phases. From the July 2026 tax period, Table 4 (ITC) is expected to be system-populated from GSTR-2B and IMS actions, with manual entry and adjustment significantly restricted. Taxpayers should verify the latest GSTN advisory for the exact scope of locking in the relevant period. Certain fields, particularly ITC reversals (Table 4B), specific RCM entries, import of services, and reclaims, are expected to remain taxpayer-driven even under the tighter regime. 

A related layer, hard validations on the Electronic Credit Reversal and Re-claimed Statement and the RCM Liability/ITC Statement, blocks GSTR-3B filing outright wherever reclaimed ITC or RCM credit exceeds the ledger balance. Hard-locking means reconciliation can no longer happen after filing; it must happen before it.

ITC Mismatch Notices

Rule 88D and the DRC-01C

CBIC inserted Rule 88D into the CGST Rules on 4 August 2023. Where ITC availed in GSTR-3B exceeds what is available in GSTR-2B by a Council notified amount, the system issues an electronic intimation in Part A of Form GST DRC-01C. Within seven days, the taxpayer must either pay the excess with interest under Section 50 via Form GST DRC-03, or justify the difference in Part B of DRC-01C. An unsatisfactory or absent response exposes the amount to proceedings under Section 73 or 74, and under Rule 59(6) can also block filing of the next period’s GSTR-1 or IFF. Rule 88D was designed for a period when GSTR-3B’s ITC figure could still be overwritten; as Table 4 hard-locking closes that gap, DRC-01C is expected to recede as the primary enforcement tool.

GST Scrutiny Notice

Under Section 61, a proper officer may review filed returns and flag discrepancies via Form GST ASMT-10, typically where ITC claimed in GSTR-3B exceeds what is auto-populated in GSTR-2B, for instance because a supplier is unregistered or filed late. ASMT-10 is not a demand notice but a preliminary query a timely, proper response usually avoids penalty. The taxpayer has 30 days to reply via Form ASMT-11 with a reconciliation statement and supporting documents. If the officer accepts the explanation, the case closes via Form ASMT-12; otherwise, it proceeds to a demand under Section 73 or Section 74 or to departmental audit.

GST Audit under Section 65 and Section 66

Substantial, recurring, or unresolved discrepancies can trigger a full GST audit. Under Section 65, the Commissioner or an authorised officer may audit a registered person’s records to verify turnover, refunds, taxes paid and ITC, against Sections 16 and 17. It begins with at least fifteen working days’ notice in Form GST ADT-01, and must generally finish within three months, extendable by six more where reasons are recorded. Findings go into Form GST ADT-02, with any demand under Section 73 or 74. A rarer route is the special audit under Section 66, where an officer of Assistant Commissioner rank or above can direct a Chartered or Cost Accountant to examine complex valuation or unusually high ITC claims, typically within ninety days, extendable by ninety more. Data analytics, cross return mismatches, high ITC to turnover ratios and large cash refund claims largely drive audit selection.

GST Reconciliation Process

• Review the IMS dashboard before GSTR-2B generation and take Accept/ Reject/ Pending action on invoices, credit/debit notes, and Bills of Entry.

• For Section 17(5), accept them in IMS  do not reject claim the ITC in GSTR-3B.

• Download and settle GSTR-2B with GSTR-3B and the purchase register by matching invoice details.

• Identify the mismatches to file or amend the returns of suppliers and ensure missing invoices are reflected in subsequent GSTR-2B statements.

• Voluntarily reverse ineligible ITC (with interest) and maintain supporting records.

• Perform ITC reconciliation every month, preferably before filing GSTR-3B.
  
  

Responding to a Notice

Where a DRC-01C intimation or an ASMT-10 notice has already been received, the response process differs slightly by form.

• For DRC-01C: log in to the GST portal, go to Returns > Return Compliance > DRC-01C, review Part A’s stated discrepancy, and use Part B to confirm payment via DRC-03 or explain the gap, for example ITC not availed earlier because goods were not received, or credit reclaimed after an earlier reversal under Rule 37 or 37A.
• For ASMT-10: review the discrepancy table row by row, since each flagged amount may reflect a different issue, and respond via Form ASMT-11 with an invoice-wise reconciliation, paying any genuinely due amount and explaining the rest.

GST Compliance Services

Manual reconciliation stops being practical beyond a certain invoice volume. Alongside professional GST compliance services from tax consultants or chartered accountants, many businesses now use automated reconciliation software that flags exceptions between GSTR-2B and the purchase register. With IMS sitting between GSTR-1 and GSTR-2B, this has effectively become a three-way reconciliation, and most software has added IMS queues, bulk accept or reject workflows, and DRC-01C or ASMT-10 draft-response tools. These services typically cover monthly reconciliation, supplier follow-up, prompt reversal of ineligible credit, and notice responses.

Non-Compliance

Failing to resolve an ITC mismatch carries consequences beyond the notice itself. Unreversed excess or ineligible credit attracts interest under Section 50, and if not voluntarily corrected, recovery follows under Section 73 or Section 74, where fraud or suppression can draw penalty up to the full tax amount and, in high value cases, prosecution under Section 132. Not responding to a DRC-01C intimation can, under Rule 59(6), block the next period’s GSTR-1 or IFF filing. Persistent non-compliance can also invite closer scrutiny of future returns and, in extreme cases, suspension or cancellation of registration under Section 29. Because hard-locking removes the option of adjusting figures after filing, unresolved mismatches now carry a higher, faster-moving cost than before.

Practices to Be Followed to Minimize ITC Mismatches

• Reconcile GSTR-2B against GSTR-3B monthly instead of annually.
• Track supplier filing status and follow up promptly on delays.
• Check each GSTR-2B (and the corresponding IMS records) for Section 17(5) ineligible items; accept the invoices in IMS where appropriate but exclude the ITC from the claim in GSTR-3B.
• Do not claim ITC on invoices not yet reflected in GSTR-2B, even if the purchase is genuine.
• Retain supporting documents, such as invoices, e-way bills and payment proof, for the statutory period.
• Keep a standing reconciliation file ready so a DRC-01C or ASMT-10 notice can be answered quickly.
• Action the IMS dashboard before every GSTR-2B cut-off and keep the monthly IMS-to-GSTR-2B position clean. Inaction is treated as deemed acceptance.
• Verify the latest GSTN advisory and portal behaviour for Table 4 locking status before each filing cycle, as system rules continue to evolve.

Conclusion

Mismatches between GSTR-2B and GSTR-3B are no longer a low-stakes clerical issue. They sit behind two system-driven enforcement tracks, Rule 88D’s DRC-01C intimation and Section 61’s ASMT-10 scrutiny, either of which can escalate into a full audit and a demand under Section 73 or 74, with non-compliance adding interest, penalty and procedural blocks of its own. A disciplined monthly reconciliation process, strong vendor coordination and, where volumes justify it, professional compliance support remain the most reliable way to protect legitimate ITC. With IMS now gatekeeping GSTR-2B, and GSTR-3B’s fields hard-locked in phases, reconciliation discipline has shifted from a post-filing correction to a pre-filing necessity.

AUTHOR: Vaishnavi Sarraff, 5th Year Law Student, Symbiosis Law School, Nagpur

References

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