Input tax credit (ITC) is the largest source of GST disputes in India. Departmental systems now compare every return against GSTR-2B, e-invoices and e-way bills automatically, so errors that once went unnoticed now produce notices within months. These are the mistakes we see most often in our GST practice in Hyderabad.
1. Claiming blocked credits under section 17(5)
Some ITC is blocked by law even if the expense is for business. Common examples:
- Motor vehicles for carrying people with seating of up to 13 (except in specified businesses such as transport of passengers or driver training)
- Food and beverages, outdoor catering, beauty treatment, health services and cosmetic surgery, unless used for making the same kind of outward supply or required by law
- Membership of clubs, health and fitness centres
- Works contract services and goods or services used to construct immovable property, other than plant and machinery
- Goods lost, stolen, destroyed, written off or given as free samples or gifts
Claiming these and reversing them later still attracts interest. The cleaner approach is to tag such expenses in your accounting system so they never reach GSTR-3B.
2. Claiming ITC that is not in GSTR-2B
Under section 16(2)(aa), ITC can be claimed only when the supplier has reported the invoice in GSTR-1 and it appears in your GSTR-2B. Claiming credit for invoices that are missing — because the supplier filed late or used the wrong GSTIN — is the most common reason for ASMT-10 and DRC-01C intimations.
Where ITC claimed in GSTR-3B exceeds GSTR-2B beyond the permitted limit, the system issues an intimation in DRC-01C under rule 88D. You must either pay the difference or explain it, failing which GSTR-1 for the following period is blocked.
3. Not reversing ITC when suppliers are unpaid for 180 days
The second proviso to section 16(2) requires ITC to be reversed, with interest, if the supplier is not paid within 180 days from the invoice date. The credit can be re-claimed once payment is made. Many businesses miss this for long-pending payables and disputed bills.
4. Missing the time limit to claim ITC
Under section 16(4), ITC for a financial year must be claimed by 30 November of the following year or the date of filing the annual return, whichever is earlier. Credit for invoices discovered after that date is lost permanently.
5. Not reversing common credit for exempt supplies
Businesses that make both taxable and exempt supplies — such as real estate developers, or companies earning interest or exempt income — must reverse a proportion of common ITC under rules 42 and 43. This reversal is frequently omitted or calculated only at year end.
A monthly reconciliation routine
The best protection is a monthly reconciliation before filing GSTR-3B:
- Match the purchase register with GSTR-2B, invoice by invoice.
- Follow up with suppliers for invoices missing from GSTR-2B.
- Exclude blocked credits under section 17(5).
- Review the payables ageing for bills unpaid beyond 180 days.
- Compute rules 42 and 43 reversals where you have exempt supplies.
Our GST team runs this reconciliation for clients every month and represents them when notices arise.
Frequently asked questions
Can I claim ITC if the invoice is not in GSTR-2B?
Generally, no. Under section 16(2)(aa), ITC can be claimed only when the supplier has reported the invoice and it appears in your GSTR-2B. Follow up with the supplier to file or correct their return.
What is the last date to claim ITC for a financial year?
30 November of the following year, or the date of filing the annual return, whichever is earlier.
What happens if I don't pay my supplier within 180 days?
The ITC must be reversed with interest. It can be re-claimed once you pay the supplier.
What is DRC-01C in GST?
An intimation under rule 88D when ITC claimed in GSTR-3B exceeds GSTR-2B beyond the permitted limit. You must pay the difference or explain it, or your next GSTR-1 is blocked.
This article is general information based on the law as at the date shown and is not professional advice. Please consult us before acting on it.