ITC Reconciliation

GST ITC Reconciliation

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GST ITC Reconciliation


What is GST ITC Reconciliation?

The fundamental pillar of the GST regime is thought to be an input tax credit. Indeed, it is the provisions of ITC that essentially make GST a value-added tax, i.e., collecting tax at all points of the supply chain while allowing credit for previously paid tax. ITC is a tool that eliminates the possibility of tax cascading and shifts the burden of taxation to the end consumer.  

The CGST Act, 2017 defines Input Tax Credit under section 2(63) as the credit of input tax. It usually means that the registered person will receive a credit for the tax paid on purchase to set off when paying the tax to the government on sales of goods or services or both.

It is important to understand that section 155 requires a person who claims ITC to bear the burden of proving such a claim.

Why is GST ITC Reconciliation important?

Every stakeholder in a specific supply chain, from the manufacturer to the end consumer, should take advantage of ITC to offset the tax paid earlier with the tax paid later.

When can you avail of GST ITC Reconciliation?

For a person to be eligible for ITC under GST provisions, a person must meet some logical conditions, which are as follows:

  1. You should be registered under GST
  2. Goods/services to be used for business purposes (Section 16(1)
  3. You must have the Invoice (a tax-paying document containing the necessary information) on hand (section 16(2)(a))
  4. You must have received the goods/services for which you paid (section 16(2)(b))
  5. The tax must have been paid to the government by the vendor who collected it
  6. The vendor to whom you pay the tax should have filed the required returns i.e., GSTR 2B

It is important to note that, in addition to the conditions you must meet to claim ITC, the vendor with whom you have transacted must also meet his set of requirements for you to claim ITC. While it makes it easier for the government to supervise because the latter person will keep the previous person in the supply chain on track because everyone’s benefits are dependent on one another, it adds a lot of communication and friction to the entire process of reconciling and claiming ITC.

What if you don’t use GST ITC Reconciliation?

Many GST provisions can be used by a registered person to manage ITC. It is advised to claim ITC and use it to help with the difficulties of the GST ITC chain, but this is not the only option. If a registered person does not claim the due ITC, the below-mentioned steps can also be taken:

    • Carry Forward:

      If the registered person is unable to use the ITC in the month it is due, it can be carried forward to the next month or any subsequent period.


    • Refund of ITC: 

      The registered person may claim a refund of ITC under the provisions of Section 54 of the CGST Act, 2017.


  • ITC Lapse: 

    ITC must be claimed within one year of the invoice date. After the expiry of the said period ITC lapses and goes in favor of the Government fund, and the individual no longer has access to ITC.

Time Limit to Avail GST ITC Reconciliation

The time limit for claiming ITC is before submitting valid GST returns for the month of September following the financial year end applicable to that invoice. The GSTR-3B return of September is to be filed before 20th of October.

What if you wrongly avail GST ITC Reconciliation?

One of the main reasons for incorrectly claiming ITC is an inaccurate reconciliation of ITC, which results in a lower or higher claim of ITC. As can be seen, ITC plays an essential role in the GST process, and claiming ITC incorrectly can have severe consequences like

  • Reversal of incorrectly claimed ITC
  • Levy of interest at a rate of 24%
  • Demand & Recovery of ITC reversal amount and interest u/s 73 & 74
  • A penalty equal to the amount of ITC incorrectly claimed u/s 122
  • Prosecution and incarceration u/s 132

What role does GSTR-2A/2B play in GST ITC Reconciliation?

Reconciliation refers to the process of matching GSTR-2A and GSTR 2B forms (auto-populated from various suppliers’ GSTR-1, GSTR-5, and GSTR-6) with Books of Accounts.  This process will identify inconsistencies in both data sets via mismatches in the reconciliation.

Suppliers may fail to include invoices for sales to recipients in their GSTR-1 for various reasons (sales return). The transaction record does not appear in the recipient’s GSTR-2A/ GSTR 2B purchase return when this happens. Furthermore, unless the invoice record of the purchase is included in GSTR-2B, the recipient will be unable to claim Input Tax Credit on such transactions.

Difference Between GSTR-2A & GSTR-2B

The two statements are vital and mandatory for the ITC reconciliation process, but it seems that the industry faces confusion regarding the full understanding of GSTR-2A & GSTR 2B. Where the statement has similar purchase centric data the following differences between the two:


Procedure to Reconcile GSTR-2A/GSTR -2B Data with GST ITC Reconciliation Register (The Manual Way)

Step 1) Keep track of invoice statuses as “Submitted” or “Not Submitted.”

Step 3) Determine the reasons for any ITC register entries that do not match GSTR-2A/2B

Step 4) Use GSTR-2A /2B to correct the mismatched entries in the ITC register caused by your error.

Step 5) Identify the entries that do not match due to vendor error.

Step 6) To understand the status, divide the entries into mismatched, unmatched, or entries with a few particulars missing.

Step 7) Determine how to contact such vendors to communicate the error.

Step 8) Communicate with the vendor about the mismatched and unmatched entries in GSTR-2A /2B caused by vendor error.

Step 9) Locate and claim any unused ITC in GSTR-2A /2B.

Step 10) Taking necessary actions such as retaining email trial, issuing debit notes, or delaying payment until the vendor corrects all incorrect entries.

Procedure to Reconcile GSTR-2A /2B Data with GST ITC Reconciliation Register (The Connect2Business Way)

Step 1) Login into Connect2Business.in

  • If you use connect2business Tally, the same credentials will work for the ITC reconciliation account.
  • If you are new to the platform, you must create an account.

Step 2) Authenticate Your GSTN

  • The authentication will allow Connect2Business to fetch GSTR-2A /2B details and integrate them automatically with its interface. (updating the data every 24 hours)

Step 3) Import your Purchase Register

  • If you are a connect2business Tally user, your records have been automatically configured with GST data
  • If you use any other platform for maintaining your Books, you can import the data by uploading a CSV file.

Step 4) Automation Process

  • In this step, all the data will be automatically arranged systematically, with all the entries’ real-time status divided into
    • Matched
    • Mismatched
    • Probable Match
    • Missing in GSTR-2A/2B
    • Missing in Books
  • The data is filtered to analyze the reconciliation situation quickly and straightforwardly. All vital information such as the supplier’s name, GSTN, address, contact information, and so on, and the tax amount segregation and status are displayed in tables and charts to make everything simple to understand.

The Finishing Line (Take-aways)

Compliance with GST ITC reconciliation is critical, and as previously stated, when the process is performed and results are obtained manually, it takes a significant amount of time. Obtaining data, organising and labelling each entry according to their status, deciding on the steps to be taken, locating the supplier and the supplier’s contact information, and finally coordinating with the supplier by communicating the corrections to be made is a time-consuming and tedious process.

Connect2Business not only automates the entire reconciliation process, cutting the number of steps required in half, but also makes data segregation and compliance accurate, quick, and understandable.

To avoid penalties due to the inherent complexities of ITC reconciliation and to make your time-consuming monthly task of managing ITC reconciliation to GSTR-2A /2B simple.

GST ITC Reconciliation FAQs

GST ITC reconciliation refers to the process of matching the Input Tax Credit (ITC) claimed by a taxpayer with the details uploaded by their suppliers in their GSTR-1 and GSTR-2A returns.


GST ITC reconciliation ensures that businesses can claim the correct amount of Input Tax Credit, reducing tax liabilities and avoiding compliance issues.

GST ITC reconciliation should ideally be performed on a monthly basis to identify discrepancies promptly.

Common challenges include mismatches in invoices, incorrect GSTIN mentioned in invoices, and delayed filing of GSTR-1 or GSTR-2A by suppliers.

Businesses can use GST reconciliation software or tools provided by GSTN to reconcile their ITC claims with supplier invoices.

Businesses can rectify mismatches by contacting suppliers, correcting invoices, and ensuring accurate details while filing GSTR-3B.

Not reconciling GST ITC may lead to the loss of eligible credits, increased tax liabilities, and potential penalties during tax audits.

No, businesses cannot claim ITC on expenses like personal use items, employee-related benefits, and non-GST registered vendor purchases. 

Proper reconciliation ensures accurate ITC claims, which positively impacts financial statements and business profitability in subsequent months.

Invoices, debit notes, credit notes, and GSTR-2A statements are essential documents for GST ITC reconciliation.

Recent Updates

06 February 2023

Individuals who wish to enroll or continue with the Composition Scheme for the financial year 2023-24 can submit a declaration in Form CMP-02 through the GST portal by 31 March 2023.

17 December 2022

  • Decriminalisation of three GST offences:
  • Obstruction of an officer’s performance of duties
  • Increase in the tax threshold amount for launching a criminal GST offence from the current limit of ₹1 crore to ₹2 crores, except where fake invoices are involved
  • Decriminalisation of compounding of offence up to a certain limit in order to lessen the workload of courts
  • GST on pulse husks for cow feed (including chilka and concentrates) was decreased from 5% to 0% as part of a few rate rationalisation issues. The 5% GST on ethyl alcohol that was previously paid at a concessionary 18% rate was also extended to refineries for the purpose of mixing with gasoline
  • A few tax-related issues were clarified, including the GST on equipment used by oil companies for exploration and how to handle invoice mismatches in GSTR-1 and GSTR-3B in the early years
  • To make e-commerce more accessible to all micro-businesses, e-commerce operators can let suppliers to be both registered under the composition system and unregistered vendors
  • The 48 meeting’s agenda did not include the second report on casinos and online gaming because it was not distributed
  • Regarding a GST rate increase, no decision has been made.

1 December 2022

The 48 GST Council meeting will be held on Saturday, 17 December 2022, with a lengthy agenda

10 November 2022

  • Circular 181 was released to make it clear that revisions pertaining to refunds will take effect immediately
  • Circular 182 is released to outline the verification process for approving claims for transitional credit made by taxpayers between 1 October 2022 and 30 November 2022.

5 July 2022

  • The deadline for GSTR-4 for FY 2021-22 has been extended until 28 July 2022, with a waiver of late fees, as per Notification 12/2022 dated 5 July 2022.
  • Notification 12/2022, dated 5 July 2022, has extended the deadline for filing CMP-08 for April-June 2022 to 31 July 2022.

26 May 2022

According to the notification CGST No.7/2022 dated 26 May 2022, if GSTR-4 for FY 2021-22 is filed between 1 May and 30 June 2022, the late fee for the delay in filing will be waived.

24 February 2022

Those who are either composition taxable persons or interested in opting for the scheme for FY 2022-23, need to submit a declaration on the GST portal using Form CMP-02 by the deadline of 31 March 2022.

GST Payment for Different Taxpayers

The GST payment process is largely the same for all taxpayers. Payment is not required if the electronic cash ledger has a sufficient cash balance. In other words, if the cash balance is insufficient, the taxpayer must utilise a challan to deposit money into the cash ledger using prescribed payment methods. The following is an overview of the payment process for various taxpayer types

Regular Taxpayer

Around the time of submitting GSTR-3B, they must use the PMT-06 challan to make any GST payments to the electronic cash ledger. The details will be published in GSTR-3B. They can also generate a challan and pay for it before or after logging in, or while completing GSTR-3B returns.

Quarterly Taxpayer

These are taxpayers who have chosen to participate in the GST QRMP scheme. They must deposit tax directly utilising the PMT-6 in the first two months of a quarter and make payment while filing GSTR-3B in the last month of the quarter.

Taxpayers Filing Nil GST Returns

For the relevant tax period, whether for the month or quarter, these taxpayers have no sales or purchases, and no tax is due. They don’t have to use the challan or pay anything.

Composition Taxable Persons

These taxpayers must total up their sales/turnover information for the quarter in challan CMP-08 and pay the tax.

Steps for Online GST Payment

To make the GST payment post-login to the GST Portal once the challan is generated, perform the following steps:

  • Access the https://www.gst.gov.in/URL. The GST Home page is displayed
  • Login to the GST Portal with valid credentials
  • Access the generated challan. Click the Services > Payments > Challan History command
  • Select the CPIN link for which you want to make the payment

Note: In case you don’t know the CPIN number, you can select the Search By Date option to search the CPIN number by the date on which it was generated.

  • Select the Mode of E-Payment
  • In the case of Net Banking
    1. Select the bank through which you want to make the payment
    2. Select the checkbox for terms and conditions to apply
    3. Click the make payment button
  • In the case of Credit/ Debit Cards
    1. Please select a payment gateway, select the payment gateway option
    2. Select the checkbox for terms and conditions apply
    3. Click the make payment button

Steps for Offline GST Payment

In the case of Over the Counter

  • In the payment modes option, select the over the counter as a payment mode
  • Select the name of the bank where cash or instrument is proposed to be deposited
  • Select the type of instrument as cash/cheque/demand draft
  • Click the generate challan button
  • Take a printout of the challan and visit the selected Bank
  • Pay using cash/cheque/demand draft within the challan’s validity period
  • The status of the payment will be updated on the GST Portal after confirmation from the bank.

Steps for GST Payment Through NEFT/RTGS

In the case of NEFT/ RTGS

  • In the payment modes option, select the NEFT/RTGS as a payment mode
  • In the remitting bank drop-down list, select the name of the remitting bank
  • Click the generate challan button
  • Take a printout of the challan and visit the selected Bank. Mandate forms will also be generated simultaneously
  • Pay using Cheque through your account with the selected bank/branch. You can also pay using the account debit facility
  • The transaction will be processed by the bank and RBI shall confirm the same within <2 hours>
  • Once you receive the Unique Transaction Number (UTR) on your registered e-mail or mobile number, you can link the UTR with the NEFT/RTGS CPIN on the GST Portal. Go to challan history and click the CPIN link. Enter the UTR and link it with the NEFT/RTGS payment
  • The status of the payment will be updated on the GST portal after confirmation from the bank
  • The payment will be updated in the electronic cash ledger in respective minor/major heads.

Penalty On Late Payment Of GST

When you miss the due date for returns, a late fee of ₹50/day (₹25 each for CGST and SGST) is to be paid if you have a tax liability. If you don’t have tax liability the late fee is ₹20/day. ₹5000/- is the cap on the late fee. In case of delay in annual return filing (GSTR-9), the late fee is ₹200/day (₹100 each for CGST and SGST).

GST Return Filing Glossary


It is the tax collected by the central government on intra-state sales.


The tax collected by the state government on intra-state sales.


The tax collected by the central government for an inter-state sale.


Union Territory Goods and Services Tax – A part of GST which is levied by the Union Government.


Goods and Services Tax Identification Number/GST registration number is a unique 15-character identity number given to the businesses that register for GST.


GST Return (GSTR) is a document capturing the details of the income, which a taxpayer is supposed to file with the authorities to calculate his tax liability. There are a total of 11 types of GST returns.


Goods and Services Tax Network (GSTN) is a non-profit, public-private partnership company that provides IT infrastructure and services for the implementation of GST.


Input tax credit [ITC] is the credit a taxable person receives for paying input taxes towards inputs used for his business.

GST Invoice

The GST invoice is issued by the person who is supplying goods and services. It includes the details of the sale and the seller’s GSTIN.

HSN Code

HSN code is a 6-digit uniform code that classifies 5000+ products and is accepted worldwide. HSN stands for Harmonized System of Nomenclature.

SAC Code

SAC code is a code used to classify services under GST. Each service has a unique SAC code.

Aggregate turnover

Aggregate turnover is the total value of all taxable supplies and it is used to determine the threshold for GST.

Taxable person

A taxable person is any individual engaged in economic activity in India and who is or is required to be registered under GST.

GST Compliance Rating

GST Compliance Rating is a score between [0 -10] assigned to all the taxpayers, that depicts their GST compliance.

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