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Claim of Input Tax Credit (ITC) and Matching, Reversal and Reclaim of Input Tax Credit (ITC) under GST Act.

(A) Provisional acceptance of Claim of Input Tax Credit [Section 41] 

  1. Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled  to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a  provisional basis to his electronic credit ledger. 

  2. The credit referred to in section 41(1) shall be utilised only for payment of self- assessed output tax as per  the return referred to in the said sub-section. 

(B) Matching, Reversal and Reclaim of Input Tax Credit [Section 42 except the proviso to sub-section (9) of  the section] 

(1) Matching of inward supply of the recipient with the outward supply of the supplier [Section 42(1)]:

The  details of every inward supply furnished by a registered person (i.e. the “recipient”) for a tax period shall, in  such manner and within such time as may be prescribed, be matched— 

(a) with the corresponding details of outward supply furnished by the corresponding registered person (i.e.  the “supplier”) in his valid return for the same tax period or any preceding tax period; 

(b) with the integrated goods and services tax paid under section 3 of the Customs Tariff Act, 1975 in respect  of goods imported by him; and 

(c) for duplication of claims of input tax credit. 

(2) Matching of the input tax credit claimed for inward supply with corresponding outward supply and  acceptance thereof [Section 42(2)]:

The claim of input tax credit in respect of invoices or debit notes relating to  inward supply that match with the details of corresponding outward supply or with the integrated goods and  services tax paid under section 3 of the Customs Tariff Act, 1975 in respect of goods imported by him shall be  finally accepted and such acceptance shall be communicated, in such manner as may be prescribed, to the  recipient.

Matching of inward supply and input tax credit would be done only after the due date of furnishing of GSTR  3. ITC taken provisionally by the recipient on the basis of GSTR-2 will be matched by the system— 

— with the details of outward supplies furnished by the supplier in GSTR 3 (filed by 20th of the month  following the relevant month); 

— with the IGST paid on the goods imported by him; 

— for any duplication of claims of ITC.

 

(3) Discrepancy in input tax credit if any to be communicated [Section 42(3)]:

Where the input tax credit  claimed by a recipient in respect of an inward supply— 

— is in excess of the tax declared by the supplier for the same supply or 

— the outward supply is not declared by the supplier in his valid returns, 
the discrepancy shall be communicated to both such persons in such manner as may be prescribed. 

(4) Duplication of claims of input tax credit to be communicated to the recipient [Section 42(4)]:

The  duplication of claims of input tax credit shall be communicated to the recipient in such manner as may be  prescribed. 

(5) Amount of discrepancy not rectified to be added to output tax liability of recipient [Section 42(5)]:

The  amount in respect of which any discrepancy is communicated under section 42(3) and which is not rectified by  the supplier in his valid return for the month in which discrepancy is communicated shall be added to the output  tax liability of the recipient, in such manner as may be prescribed, in his return for the month succeeding the  month in which the discrepancy is communicated.

(6) Excess on account of duplication of claims to be added to the output tax liability of the recipient  [Section 42(6)]:

The amount claimed as input tax credit that is found to be in excess on account of duplication of  claims shall be added to the output tax liability of the recipient in his return for the month in which the duplication  is communicated. 

(7) Reduction from output tax liability if the discrepancy is corrected by the supplier in his return [Section  42(7)]:

The recipient shall be eligible to reduce, from his output tax liability, the amount added under section  42(5), if the supplier declares the details of the invoice or debit note in his valid return within the time specified in  sub-section (9) of section 39. 

(8) Interest payable on addition in output tax liability [Section 42(8)]:

A recipient in whose output tax  liability any amount has been added under section 42(5) or section 42(6), shall be liable to pay interest at the rate  specified under section 50(1) on the amount so added from the date of availing of credit till the corresponding  additions are made under the said sub-sections.

(9) Interest paid on additional output tax liability to be refunded if there is a reduction under section 42(7)  [Section 42(9)]:

Where any reduction in output tax liability is accepted under section 42(7), the interest paid  under section 42(8) shall be refunded to the recipient by crediting the amount in the corresponding head of his  electronic cash ledger in such manner as may be prescribed:  Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by  the supplier. 

(10) Wrong reduction from output tax liability will also attract interest [Section 42(10)]:

The amount  reduced from the output tax liability in contravention of the provisions of section 42(7) shall be added to the  output tax liability of the recipient in his return for the month in which such contravention takes place and such  recipient shall be liable to pay interest on the amount so added at the rate specified in section 50(3).
 
Blocked Credits i.e. Goods or Services or Both on which Input Tax Credit (ITC) shall Not be Available under GST Act. [Section  17(5)] GST - Ready Reckoner in India Composition Scheme under the GST Law for small Taxpayers [Section 10(1) of CGST Act, 2017]
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