What this covers
Reviewing and reconciling input tax credit — establishing what you are entitled to, identifying what is blocked or needs to be reversed, matching your claim to what your suppliers have actually reported, and correcting the position before the department raises it.
Statutory basis
Section 16 of the CGST Act, 2017 sets the conditions: possession of a tax invoice, receipt of the goods or services, tax actually paid to the government by the supplier, the return furnished, and the invoice appearing in the auto-populated statement available to you. Section 17 apportions credit where supplies are partly exempt or partly for non-business use, and section 17(5) blocks credit outright on a specified list. Sections 18 and 19 deal with credit in special circumstances, and Rules 37, 42 and 43 with reversal.
Who it applies to
Every registered person other than one under the composition scheme. It bites hardest on businesses with a mix of taxable and exempt supply, where common credit has to be apportioned month by month and annually; on businesses with significant expenditure falling inside the blocked list; and on anyone whose suppliers file late, because credit conditioned on the supplier's compliance is credit at risk however good your own records are.
What we do
- 1Reconcile the credit taken in your returns against the auto-populated statement and against your purchase ledger — three-way, because two of them agreeing proves nothing.
- 2Identify invoices in your books that suppliers have not reported, and pursue them while the time limit for claiming is still open.
- 3Test the section 16 conditions on the credit claimed, including whether payment to the supplier has been made within the period the rules require.
- 4Identify credit blocked by section 17(5) and remove it, rather than leaving it to be found on audit with interest.
- 5Compute the apportionment where exempt or non-business supply exists, monthly and on the annual true-up.
- 6Reverse what needs reversing in the return, and document the working so the reversal can be explained.
- 7Report the position with the exposure quantified, and the process change that stops it recurring.
What you receive
- Reconciliation
- The three-way reconciliation of returns, auto-populated statement and purchase ledger.
- Exposure schedule
- Credit at risk, split by reason — supplier default, blocked credit, condition not met, apportionment.
- Supplier follow-up list
- The invoices to chase, with the deadline for each.
- Corrections
- The reversals and claims to be made in the current return, with the working behind them.
Documents and information required
Purchase register for the period · returns filed for the period · downloaded auto-populated credit statements · purchase invoices for high-value or queried items · details of exempt and non-business supply · ageing of creditors, for the payment condition · fixed-asset additions where credit was claimed · prior audit or notice correspondence on credit.
Key dates
Credit for a financial year cannot be claimed after the time limit section 16 sets, which is tied to the return for a specified month following the year end or the annual return, whichever is earlier — so an invoice found during the annual audit may already be out of time. Annual apportionment true-ups fall due with that same return. Because the deadline is effectively a single date each year, reconciliation is worth doing quarterly rather than annually.