The significant advantage of GST is the availability of input tax credits throughout the supply chain, which are claimed based on self-assessment. However, the self-assessment-based approach for claiming ITC has resulted in revenue leakage due to misuse by certain sections of taxpayers. The Government has introduced many measures from time to time, and one such effort is availing of ITC only as and when the purchases invoices are reflected in GSTR – 2B.
The input tax credit is eligible only upon satisfying the following conditions.
- The recipient has a copy of the tax invoice or debit note
- The recipient has received the goods and services
- The documents issued by the supplier i.e., the tax invoice or the debit note, are as per the provisions from time to time.
- The supplier files the returns.
- The invoice or debit note is auto-populated in the recipient’s GSTR – 2B
- The supplier has paid the taxes
- The goods or services or both are being used in the course or in the furtherance of business.
- You must have received the last lot if the goods are received in instalments.
- If the supplier is not paid within 180 days of issuing the tax invoice, you must reverse the ITC.
- Avail the input tax credit by the 30th of November in the following financial year.
The input tax credit is availed only if all the above conditions are met. While filing GSTR – 3B, the taxpayers must reconcile their books of accounts with GSTR -2 B to identify which invoices they can avail the input tax credit.
In the initial days of the rollout of GST, the taxpayers were able to claim the input tax credit without matching or verification; due to the fraud in availing the input tax credit, the department has introduced a new feature of issue of intimation if the amount of input tax availed in GSTR – 3B is more than amount reflected in GSTR – 2B through a new form called Form DRC – 01C. Now let’s try to understand what is DRC – 01C; who will issue it? How will it be issued? How many days are available for filing a reply? What are the consequences of not replying? How to reply? And many more in this blog.
- What is From DRC – 01C?
Ans. Form DRC – 01C is an intimation issued by the department, which is auto-generated based on the input tax credit claimed in GSTR – 3B is more than the amount reflected in GSTR – 2B.
2. Who will issue the From DRC – 01C?
Ans. The system auto-generates Form DRC-01C.
3. How is the Form GST DRC – 01C issue communicated to the taxpayers?
Ans. It is emailed to the taxpayers through the mail id registered on the portal and uploaded on the portal.
4. When will the system auto-generate GST DRC – 01C?
Ans. If there is a difference between the input tax credit claimed in GSTR – 3B is more than the amount reflected in GSTR – 2B.
5. What is to be done on receipt of GST DRC – 01C?
Ans. The Taxpayer has to reply for the reasons which have caused the differences between GSTR 3B and GSTR – 2B.
6. In how many days the Taxpayer has to file the reply?
Ans. The Taxpayer has to file the reply in 7 days.
7. The time provided to file the reply is seven days; is it seven working days or seven calendar days?
Ans. As the wording used is seven days, it has to be construed as calendar days only, which means it does not include any weekends or public holidays.
8. In which form the reply has to be filed?
Ans. The reply is to be filed in Part B of Form DRC-01C.
9. Does the Taxpayer have to file the reply online or submit it physically with the jurisdiction officer?
Ans. The Taxpayer has to file online only.
10. What is the consequence of not replying to Form DRC – 01C?
Ans. If the Taxpayer does not file the reply in the future, the Taxpayer cannot file GSTR – 1 for the subsequent periods.
11. What could be the reasons for the differences in GSTR – 2B and GSTR – 3B concerning input tax credit?
Ans. The differences between GSTR – 2B & 3B could be any of the following reasons.
- The supplier ships goods but not received by the recipient.
- The previous month’s input tax credit is claimed in the current month.
- The input tax credit is not claimed due to blocked ineligible credit.
- Input tax credit reversed on account of free samples, goods lost or damaged or destroyed.
- Input tax credit reversed for non-payment to the supplier within 180 days.
- Input tax credits claimed in 3B, which are not reflected in GSTR – 2B like BOE filed for import of goods or inward supplies from SEZ units.
- Input tax credit claimed on inward supplies from SEZ unit not reflected in GSTR – 2B
- Rectification of input tax credit entered wrongly in the previous periods.
- Inputs used for the supply of exempted goods
- Input tax credit reversal on sale of capital goods
- Tax invoice/debit notes are not accounted for in the books of accounts.
- Credit note issued by supplier/s not accounted
12. What are the possible reasons for the input tax credit claimed in GSTR – 3B is more than the amount reflected in GSTR – 2B?
- The previous month’s input tax credit claimed in the current month – non-receipt of goods or missed ITC in previous months
- Input tax credits claimed in 3B, which are not reflected in GSTR – 2B
- Input tax credit claimed on inward supplies from SEZ unit not reflected in GSTR – 2B
- Input tax credit claimed for making payment to suppliers after 180 days.
13. What is the recourse if the Input tax credit has been claimed wrongly and now wants to rectify?
Ans. If the input tax credit has been claimed wrongly previously and is identified through GST DRC – 01C, the Taxpayer can discharge the same by using From DRC – 03.
14. Can the Taxpayer use the existing balance of the input tax credit in the electronic credit ledger?
Ans. No, the provisions say only tax payment, meaning the Taxpayer cannot use the balance in the electronic credit ledger.
15. Do I need to upload the details of DRC–03 while filing the reply, in case it is required to be paid in cash?
Ans. Yes, details of DRC–03 have to be mentioned while furnishing the reply online.
16. Is interest required to be paid while discharging the amount through DRC – 03?
Ans. Yes, interest must be paid under Section 50 if any amount is paid through DRC – 03.
17. On receipt of money through DRC – 03, will the officer issue DRC – 04?
Ans. Yes, the onus is on the Taxpayer to get DRC–04 issued whenever a payment is made through DRC-03.
18. While filing Part B of DRC – 01C, can I give my reasons, or are they pre-defined?
Ans. While furnishing the reply, the user has to select the option from the pre-defined list.
19. What are the pre-defined values in Part – B of DRC – 01C?
Ans. The list of pre-defined values are
- Input tax credit not availed in earlier tax period(s) due to non-receipt of inward supplies of goods or services in the said tax period (including in case of receipt of goods in installments).
- Input tax credit not availed in earlier tax period(s) inadvertently or due to mistake or omission.
- ITC availed in respect of import of goods, which is not reflected in FORM GSTR-2B
- ITC availed in respect of inward supplies from SEZ, which are not reflected in FORM GSTR- 2B
- Excess reversal of ITC in previous tax periods, which is being reclaimed in the current tax period
- Recredit of ITC on payment made to the supplier, in respect of ITC, reversed as per rule 37 in the earlier tax period.
- Recredit of ITC on the filing of return by the supplier, in respect of ITC, reversed as per rule 37A in the earlier tax period.
- FORM GSTR-3B was filed with incorrect details and will be amended in the next tax period (including typographical errors, wrong tax rates, etc.)
- Any other reasons (Please specify)
20. For availing the input tax credit, do I need to reconcile the data reflected in GSTR – 2B with the purchase register?
Ans. Yes, it is mandatory to do a reconciliation between the Purchase Register and GSTR – 2B before availing the input tax credit.
Also read: GSTR 1 Details: Everything You Need to Know
21. Do I need to prepare a reconciliation statement if there is a difference between GSTR – 2B and the input tax credit claimed in GSTR – 3B?
Ans. Yes, it is mandatory to prepare a reconciliation statement if there are differences and preserve the records for future reference and for filing the reply.
22. Does the GSTN/Department specify any specific format for doing reconciliation?
Ans. No, the Department of GSTN is providing no specific format for reconciliation.
23. From which month is this effective?
Ans. The effective date is yet to be notified. The amendment discusses threshold percentage or amount; if the difference between the GSTR – 2B and 3B is more than the threshold percentage, then only the notice will be generated. As of date, the threshold percentage or amount is not yet defined. Once it is defined, it will be notified.
24. Are there any other consequences if the reply is not filed within seven days?
Ans. If the reply is not filed within seven days, taxpayers cannot file GSTR – 1 subsequently and also, the department can recommend for action under section 73 or 74 of the CGST Act 2017.
25. Is any personal hearing provided after the submission of the reply?
Ans. As per the provisions, there is no provision for a personal hearing. If the officer is not satisfied with the reply furnished, he will initiate proceedings under section 73 or 74, and during that process, PH will be provided.
Form DRC – 01C will be issued only in cases where the difference is beyond the threshold limit (amount or percentage) on notification. As we are all aware of the implications, it is worthwhile to follow the provisions of the law and maintain proper reconciliations before availing of the input tax credit.
Small taxpayers can use the Logo’s CaptianBiz, a cloud and mobile-based billing package for recording the purchases correctly and following the provisions of GST in true spirit. This will prevent the taxpayers from receiving DRC – 01C saving their time and cost of non-compliance.