How to responses DRC-01C Intimation under Rule 88D

ITC Mismatch GSTR-2B vs GSTR-3B  – DRC-01C Intimation under Rule 88D

New mechanism to deal with Input Tax Credit mismatches between form GSTR-2B and form GSTR-3B was recommended.  Accordingly, CGST Rule 88D was notified on 4th August 2023 vide CGST notification 38/2023 to allow GST system to send automatic intimations to taxpayers for major ITC discrepancies between these two returns (form GSTR-2B and form GSTR-3B).

you’re referring to a notice issued under Rule 88D of the Central Goods and Services Tax (CGST) Rules, specifically related to an Input Tax Credit (ITC) mismatch between GSTR-2B and GSTR-3B in the context of the Goods and Services Tax (GST) regime in India.

What is a DRC-01C Notice?

A DRC-01C notice is issued by the tax authorities when there’s a discrepancy detected between the Input Tax Credit (ITC) claimed by a taxpayer in their GSTR-3B return and the auto-populated ITC available in their GSTR-2B statement.

As per Rule 88D of the CGST Rules, if the availed Input Tax Credit in GSTR-3B exceeds what is reflected in GSTR-2B by a certain percentage, then this form is automatically generated. The taxpayer is provided with 2 options:

• Payment of Excess GST Input Tax Credit : Pay amount equal to the excess GST Input Tax Credit availed, along with interest u/s 50, via using GST FORM DRC-03.

• Explanation for Input Tax Credit Mismatch: Professional / company should Explain reasons for gst mismatch on common gst portal within a prescribed time limit.

What happen when DRC-01C Notice?

In case you can claim excess Input Tax Credit (ITC) against GSTR-2B even if the supplier has filed GST returns late But As per the CGST Rule 88D, a registered person shall be able to avail ITC in respect of only those invoices or debit notes the details of which have been furnished by the supplier in their GSTR-1/IFF and appearing in GSTR-2B. The claims can be up to 105% of the eligible ITC in GSTR-2B for a tax period. Hence, a taxpayer can claim 5% more ITC towards the invoices/debit notes not uploaded in GSTR-2B by corresponding suppliers. It must be reconciled and adjusted in the subsequent tax periods when the invoices are actually uploaded by the suppliers.

Consequences of Claiming Excess ITC:If the ITC claimed by a taxpayer in his/her GSTR 3B is more than 105% of GSTR 2B then the taxpayers GST registration can be processed for cancellation as per Rule 21 (e) of CGST rules 2017. A proper officer will issue a notice showing the mismatch ITC claimed and you will be asked to explain the reason behind claiming of ITC more than 105% and If the reason is not found valid then the proper officer will be forced to cancel the registration.

When such a notice is issued, it typically means that the tax authorities have detected a discrepancy in the Input Tax Credit claimed by a taxpayer in their GSTR-3B return compared to what is available as per GSTR-2B, which is an auto-drafted statement generated for taxpayers based on the details furnished by their suppliers.

Rule 88D of the CGST Rules empowers the tax authorities to inform the taxpayer electronically if any discrepancy is found during the process of matching the ITC claimed in GSTR-3B with the Input Tax Credit available in GSTR-2B. This notice intimates the taxpayer about the detected mismatch and usually requests them to reconcile and rectify the discrepancy within a stipulated time frame.

Upon receiving such a notice, the taxpayer needs to review their records, including invoices and other relevant documents, to identify the cause of the mismatch. Once identified, they should rectify the error by either adjusting the ITC claimed in subsequent returns or by making necessary amendments in the return for the period in which the error occurred.

GST taxpayer to respond to such notices promptly and take corrective actions to avoid any potential penalties or further scrutiny by the tax authorities. Additionally, seeking professional advice or consulting with a tax expert might be beneficial in handling such situations effectively.

new mechanism to deal with ITC mismatches between form GSTR-2B and form GSTR-3B was recommended.  Accordingly, CGST Rule 88D was notified on 4th August 2023 vide CGST notification 38/2023 to allow GST system to send automatic intimations to taxpayers for major ITC discrepancies between these two returns.

Rule 88D of the Central Goods and Services Tax (CGST) Rules is an important provision that deals with the reconciliation of Input Tax Credit (ITC) between different GST returns filed by registered taxpayers in India. It primarily focuses on identifying and rectifying any mismatches between the ITC claimed in GSTR-3B and the ITC available as per GSTR-2B.

As you mentioned, GSTR-3B is a summary return where taxpayers provide consolidated information about their inward and outward supplies, along with details of ITC availed and tax paid, for a specific tax period. This return is filed by registered taxpayers on a monthly basis.

GSTR-2B is a system-generated statement that provides information regarding the ITC available to a taxpayer based on the details of their purchases and expenses as reflected in GSTR-1 and GSTR-2A of their suppliers. Unlike GSTR-3B, GSTR-2B is a static form and is generated periodically for the taxpayer to facilitate easier reconciliation of ITC.

There will be a common difference in IGST month ending last date purchase reflected in the month and goods will be received next month.

When there’s a mismatch between the ITC claimed in GSTR-3B and the ITC available in GSTR-2B, the tax authorities may issue an intimation under Rule 88D, specifically the DRC-01C form. This intimation notifies the taxpayer about the detected discrepancy and requests them to reconcile the difference within a specified timeframe.

Similar to the DRC-01B intimations for tax liability mismatches between GSTR-1 and GSTR-3B, the DRC-01C intimations for ITC mismatches between GSTR-2B and GSTR-3B are aimed at ensuring accuracy and compliance in the GST system. Taxpayers are expected to review their records, identify the reasons for the mismatch, and take necessary corrective actions to rectify the discrepancy.

What is Time limit for replying to GST DRC-01C?

It’s crucial for taxpayers to be aware of the timelines set by the tax authorities for responding to intimation notices like DRC-01C under Rule 88D.

As you mentioned, the time limit for replying to the DRC-01C intimation is typically set at seven days from the date of issuance. Within this period, if the taxpayer agrees with the detected discrepancy and wishes to pay the demanded tax along with any applicable interest, they are required to deposit the amount using Form DRC-03.

Additionally, it’s important for the taxpayer to respond to the intimation by confirming the payment of tax in Part-B of the DRC-01C form within the same seven-day timeframe. This confirms to the tax authorities that the taxpayer has acknowledged the discrepancy and taken necessary action to rectify it by paying the demanded tax.

Adhering to the specified timelines is essential to avoid any further escalation or penalties from the tax authorities. Failure to respond within the stipulated period may lead to additional scrutiny, penalties, or other consequences as per the provisions of the GST law.

How to reply to GST Notice DRC-01C?

Detailed steps on how to reply to a DRC-01C intimation on the GST portal. Here’s a summarized step-by-step guide:

• Go to the GST portal and log in using your credentials.
• After logging in, click on the “Services” tab on the menu bar.
• From the dropdown menu, navigate to “Returns” and then click on “Return Compliance.”
• In the GST Return Compliance section, locate and click on “DRC-01C.”
• You can search for the specific DRC-01C intimation by return period, reference number, or status. Once you find the relevant intimation, click on it to proceed.
• In Part-A of DRC-01C, you’ll find details of the intimation, including the nature of the ITC difference and the amount demanded, if any. Review this information carefully.
• Based on the nature of the discrepancy and your assessment, take suitable action. This may involve either paying the excess ITC claimed, along with any applicable interest, or providing reasons for the ITC difference.
• Respond by filling in the particulars of the action taken in Part-B of DRC-01C. If you are paying the demanded tax, provide details of the tax payment. If you are providing reasons for the ITC difference, ensure to provide a clear explanation.
• After filling in the required information in Part-B, submit the form. Review the details one last time to ensure accuracy before submission.
• Once submitted, you should receive a confirmation of the response submission. Keep a record of this confirmation for your reference.

Note : Click on ‘Services’ tab and navigate to Returns > Return Compliance > DRC-01C.

By following these steps, you can effectively reply to a DRC-01C intimation on the GST portal, ensuring compliance with the GST regulations and resolving any discrepancies in a timely manner.

How to avoid DRC-01C?

GST Taxpayer has to maintaining regular reconciliation between GSTR-2B, GSTR-3B, and purchase records is crucial to avoid receiving DRC-01C intimations or any other notices related to ITC discrepancies. Here are some steps to help avoid DRC-01C notices:

• Implement automated tools or software solutions to reconcile GSTR-2B data with your purchase records and GSTR-3B data before filing returns. Automation can streamline the reconciliation process and reduce the chances of errors or mismatches.
• Conduct periodic reviews of your purchase records, GSTR-2B, and GSTR-3B to identify any discrepancies or missing invoices. This review should be performed well in advance of filing returns to allow sufficient time for resolution.
• GST Taxpayer should allow team to follow up with non-compliant vendors for timely reporting of invoices in corresponding GSTR-1/IFF.
• Encourage your suppliers to timely report their sales invoices in GSTR-1 or the Invoice Furnishing Facility (IFF) if they are quarterly filers. Timely reporting by suppliers ensures that the invoices are reflected in your GSTR-2B, reducing the risk of ITC mismatches.
• Maintain open communication channels with your suppliers to address any issues or delays in invoice reporting. Encourage them to adhere to GST compliance timelines to facilitate smooth reconciliation processes.
• Provide training to your accounting and finance teams on GST compliance requirements, including reconciliation processes. Ensure they are aware of the importance of timely reconciliation and the potential consequences of ITC mismatches.
• Maintain proper documentation of invoices, purchase records, and reconciliation reports for each tax period. This documentation serves as evidence during audits and helps in resolving any disputes with tax authorities.

By following these steps and incorporating automated reconciliation processes into your GST compliance workflow, you can minimize the risk of receiving DRC-01C intimations and ensure smooth filing of GST returns without ITC discrepancies.

GST Notification No.38/2023 dated 04.08.23 : https://gstcouncil.gov.in/sites/default/files/All-tax-notification/gst-ct-38-2023.pdf

Example of Notification No.38/2023 dated 04.08.23

So, GST taxpayers should ensure prompt action upon receiving such intimation notices, including timely payment of any demanded tax and submission of the required response within the prescribed time frame.

Failure to address such discrepancies within the stipulated time frame may lead to further scrutiny by the tax authorities and could result in penalties or other consequences as per the provisions of the GST law.

In summary, Rule 88D plays a crucial role in promoting transparency and accuracy in the GST regime by facilitating the reconciliation of ITC between different GST returns filed by taxpayers, thereby minimizing errors and discrepancies.