Demystifying Form DRC-01B: A Comprehensive Guide

Introduction to Form DRC-01B

Form DRC-01B is a vital compliance form introduced under India’s Goods and Services Tax (GST) regime. It aims to ensure proper reporting and reconciliation of tax liability between what is declared in GSTR-1 and what is paid in GSTR-3B. This comprehensive guide will explore all key aspects related to Form DRC-01B.

Understanding Form DRC-01B

What is Form DRC-01B?

Form DRC-01B is an “Intimation of Discrepancy in Tax Liability Declared and Paid”. In simple terms, if there is a mismatch between the tax liability you declared in GSTR-1 and what you paid in GSTR-3B, the tax department will inform you and ask for necessary explanations.

This intimation will be sent to you in Form DRC-01B. And you’ll have to provide the reconciliation details and reasons for the mismatch in Form DRC-01B only.

So, in essence, Form DRC-01B is a two-part compliance form comprising:

• DRC-01B (Part A): Issued by the tax department intimating discrepancy

• DRC-01B (Part B): Filed by taxpayer providing explanations/reconciliation

Why Was DRC-01B Introduced?

Form DRC-01B was introduced to ensure disciplined compliance under GST. As we discussed earlier, the shift to a self-assessment-based tax payment structure required taxpayers themselves to assess, pay, and file accurate tax returns.

However, there were quite a few cases noticed by tax administrators where some taxpayers were:

• Declaring higher outward supplies in GSTR-1 to enable higher input tax credits to their recipients
• But not paying the entire corresponding tax liability in their GSTR-3B

Who is Required to File Form DRC-01B?

Form DRC-01B compliance requirements could arise for any GST-registered taxpayer, including:

• Regular taxpayers 
• Casual taxpayers
• Taxpayers under the composition scheme
• SEZ Units/Developers

The only criterion is that if your tax liability declared in GSTR-1 exceeds what was paid in GSTR-3B beyond a defined threshold, you will receive an intimation under DRC-01B wherein you must reconcile and explain this mismatch.

Exploring the Components of Form DRC-01B

Form DRC-01B is divided into Part A and Part B.

Part A is a generated DRC-01B intimation issued by the tax department to the taxpayer informing about the discrepancy in tax liability declared across two main GST returns for a particular tax period.

Taxpayers must then respond with reconciliation details and explanations sought in Part B of Form DRC-01B. The taxpayer must file This part online on the GST Portal within the stipulated time limit upon receiving the Part A order.

Let us understand both components of Form DRC-01B in detail:

A. DRC-01B Part A – Tax Department Intimation

Part A of DRC-01B is auto-generated by the GST portal if there is a beyond-threshold tax liability mismatch across GSTR-1 and GSTR-3B filed by the taxpayer for a tax period.

Key details included in system-generated DRC-01B Part A are as follows:

1. Intimation Reference Number – Unique auto-generated reference number to identify the specific DRC-01B instance

2. GSTIN and Legal Name – GSTIN and associated Legal Name of the Registered Person who has to file DRC-01B reconciliation

3. Tax Period – Specific tax period (month/quarter) selected for detailed analysis by tax department

4. Rule 142(2A) – The Section under the CGST Act authorizing this compliance requirement

5. Table 1 – Tax liability comparison across GSTR-1 and GSTR-3B for identified period basis pre-defined parameters

6. Table 2 – Summary of verification done by the department as per their internal risk parameters

7. Guidelines – Brief instructions for taxpayers on how to respond and submit Part B reconciliation

This system-generated Part A order has to be responded to with necessary explanations and reconciliation details sought within prescribed timelines.

B. DRC-01B Part B – Taxpayer Response and Reconciliation

DRC-01B Part B is where taxpayers submit the reconciliation response and explain reasons for differential tax liability between GSTR-1 and GSTR-3B highlighted by tax officers in the Part A intimation.

Key constituents to be covered by taxpayers in DRC-01B Part B are:

1. Tax Liability Reconciliation Details – ARN No. and date of cash/credit ledger payments  made in GSTR-3B to match the incremental GSTR-1 liability

2. Reasons for Liability Mismatch – Select applicable reasons from pre-defined drop-down options

3. Remarks/ Explanations – Detailed remarks explaining the selected reasons for tax liability mismatch

4. Verification – Certifying the correctness of the above reconciliation details and explanations provided

The DRC-01B Part B has to be filed directly online on the GST Portal. An authorized signatory has to digitally approve and submit it within the stipulated 7-day timeline after receiving department intimation.

Step-by-Step Guide to Completing Form DRC-01B

There are two key stages involved in the entire DRC-01B compliance and reconciliation mechanism:

Stage 1 – Receiving Intimation u/s Form DRC-01B (Part A)

Stage 2 – Responding with Reconciliation Details in Form DRC-01B (Part B)

Let us understand both these stages from a taxpayer’s perspective by covering the step-by-step process:

A. Receiving Intimation u/s DRC-01B (Part A) from the Tax Department

As discussed earlier, Form DRC-01B Part A is a system-generated intimation by tax officers informing you of tax liability mismatch across two key GST returns for a particular tax period – GSTR-1 and GSTR-3B.

You will typically receive Part A intimation via email and SMS from the GST Portal on your registered email ID and mobile number if such liability difference breaches the prescribed threshold limits basis the automated analytics.

Following are the key details to check as soon as you receive DRC-01B Part A intimation:

1. Verify Credentials and Downloading Intimation

Login to the GST Portal using your credentials

Navigate to Services > User Services > View/Download Order in DRC-01B

Download the system-generated DRC-01B Part A notice with your reconciliation liability details.

2. Understand the Discrepancy Period and Parameters Highlighted

Let’s understand this crucial next step.

B. Responding with Reconciliation Details in DRC-01B (Part B)

Now that you’ve received the initial DRC-01B Part A discrepancy notice from tax authorities, the real compliance activity starts – submitting a detailed response and reconciliation as sought in Form DRC-01B Part B.

Your aim should be to provide satisfactory explanations for the differential tax liability highlighted within the stipulated 7-day timeline.

Here are the key recommended steps to follow:

1. Go to the GST Portal (www.gst.gov.in.) and log in using your credentials
2. Services – Returns- Return Compliance. Or simply go to the Return Compliance link on your dashboard.
3. On the Return Compliance page, click “VIEW” next to the Liability Mismatch (DRC-01B) tile.
4. On the next page, please click on the underlined reference number hyperlink for each DRC-01B you need to file Part B against.
5. Later, in Section Part B, type the ARN of DRC-03 ( if required) and press the Validate button. Ensure the ARN is valid.
6. Or choose the reason(s) for the difference in liability from a drop-down menu and explain it here.
7. After saving the details in Part B, select the declaration checkbox.
8. Enter authorised signatory name and place. Click on the Save button.
9. When you do this, it will bring up the drafted details for your perusal before submission.
10. Check the details and click on Proceed in a warning pop-up.
11. Hit DRC-01B with EVC or DSC to send in the final form.
12. Fill in the OTP or DSC information to complete filing.
13. For record purposes, download the final submitted DRC-01B form PDF.

Best Practices and Tips for Form DRC-01B Submission

While the detailed step-by-step understanding shared earlier should enable you to respond accurately to any DRC-01B notice and submit a reconciliation response with the tax department, here are some additional best practices taxpayers can follow:

1. Classify Input Tax Credits Basis Reconciliation with GSTR-2B/2A 

One reason why tax liability in your GSTR-3B may be lower than GSTR-1 is the non-reconciliation of eligible ITC. Hence, best practice is to classify your input tax credits from purchases received during a tax period in three buckets:

• ITC as per GSTR-2B/2A
• ITC not in GSTR-2B/2A but available & eligible
• ITC not available or ineligible

2. Make Additional Liability Payments through Form DRC-03

Instead of waiting for a GST Demand Notice like DRC-01B from the tax department to discharge your tax dues, it is advisable to suo-moto make cash ledger payment if you ever discover incremental GSTR-1 tax liability for the past period through Finance reconciliation.

You can voluntarily discharge this extra liability by filing the Details of Payment Made form, i.e., Form DRC-03, selecting the reason as ‘Liability as per GSTR-1’.

3. Correct GSTR-3B in the Next Tax Period

For small process or data capture errors leading to lower GSTR-3B tax liability than GSTR-1, instead of making fresh tax payments, you can choose the simplified option of declaring the extra amount voluntarily in the next period’s GSTR-3B itself through the amendments functionality provided.

4. Maintain Detailed MIS Reconciliation Records

For internal MIS purposes, detailed GSTR-1 vs GSTR-3B liability reconciliation with supporting 2-level account heads break-up and explanations should be maintained tax period-wise.

This comes in handy while responding fast to any system-generated DRC-01B notices without losing much productive time.

Importance of Accuracy and Compliance

Filing an accurate and compliant Form DRC-01B is critical for taxpayers due to the following reasons:

1. Blocking of GSTR-1: If DRC-01B for the previous tax period is not filed, then the taxpayer will be restricted from filing GSTR-1 returns for the subsequent period. This can impact their business operations.

2. Additional Liability and Interest: Any under-reported liability in GSTR 3B vs. GSTR 1 has to be paid with applicable interest if not reconciled on time through DRC-01B. Delay can lead to more interest burden.

3. Loss of ITC: Unreconciled liability differences could lead to loss of input tax credit being available to the taxpayer as per GST law. So, accuracy in DRC-01B filing helps avoid this.

4. Damage to GST Compliance Rating: Suppression of liability reporting can negatively impact the taxpayer’s compliance rating when the rating mechanism comes into effect. A good rating will have associated benefits.

5. Reputation Risk: Incorrect liability reporting through DRC-01B can increase the chances that stakeholders, such as banks, view taxpayers as risky entities. This can impact smooth business operations.

6. Audit Trigger: Consistent tax liability differences between GSTR-1 and GSTR-3B, as reported in DRC-01B, can increase the chances of the taxpayer getting picked up for a GST audit. Prevention is better.

The Future of Form DRC-01B and Regulatory Changes

Form DRC-01B Streamlining

The government may streamline further and digitize the DRC-01B reconciliation process. Some possibilities include:

• Pre-filling of liability differences from GSTR-1 and GSTR-3B to reduce data entry
• Additional system-computed validations to reduce errors
• Simplified explanation process with drop-downs instead of manual entries

Integration with GST Compliance Rating

Form DRC-01B compliance and reconciliation timeliness may be integrated into the planned GST compliance rating framework. So, taxpayers have an added incentive to resolve differences quickly.

Response Time Reduction

The permissible response time to file DRC-01B Part B after receiving Part A intimation may be reduced from 30 days to a smaller duration. This will speed up compliance closure.

Quarterly DRC-01B for Monthly Filers

The government can introduce quarterly issuance of DRC-01B even for monthly GSTR-1 and GSTR-3B filers to ease reconciliation needs. However, suitable measures will need to be implemented to avoid tax loss.

Thresholds for Liability Differences: 

The relevant thresholds for differences in GSTR-1 vs. GSTR-3B liability that result in the notification of the DRC-01B have already been lowered from 10 % to 5 %. It is still possible to raise these limits to stem revenue leaks.

Conclusion

We hope this detailed guide clarifies Form DRC-01B’s end-to-end procedures and nuances. Soon to be more intense than ever, this all-purpose form for reconciling and complying has recently undergone a significant overhaul.

Taxpayers are supposed to set up reliable methods for reconciling liabilities with clear audit logs. There must be adequate documentation and timely responses to prevent future headaches with tax notices. If you have any other questions about GST, please drop us a line.

Also Read: GST Calculator Online – Simplify Your Daily Finances And Taxes

FAQs

• What is Form DRC-01B?

Form to reconcile the difference between GSTR-1 and GSTR-3B tax liability.

• When can Form DRC-01B be filed?

If the tax liability difference between GSTR-1 and GSTR-3B exceeds the threshold for a tax period, an initiation will be sent. Then, you need to file the DRC-01B form.

• What if I don’t file DRC-01B on time?

Your GSTR-1 filing will be restricted for subsequent tax periods.

• What details must be furnished in DRC-01B?

ARN of DRC-03 payment or reasons for tax liability difference with explanation.

• How do I file Form DRC-01B with the reasons explained? 

Select reasons from the drop-down, explain in 500 characters & submit after declaration.

• Is it mandatory to make payment through DRC-03?

No, you can provide reconciliation reasons without making any payment.

• What is the key precaution while providing DRC-03 ARN? 

Ensure tax period, date & cause for payment details are accurate in DRC-03.

• How can I revise DRC-01B after filing? 

Once filed, Form DRC-01B cannot be revised. Need to provide clarification via letter.

• Is there any time limit to file Form DRC-01B?

Yes, DRC-01B must be filed within 30 days from the date of receiving the intimation.

• Where can I access the detailed DRC-01B filing procedure?

Detailed steps are available under the GST Return Compliance section on the GST Portal.

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