Library / Goods and Services Tax: The Professional's Master Guide

19. ITC Matching, IMS and Credit Restrictions

The original GSTR-2 and GSTR-3 matching was never made to work, and the law has moved to a system where the portal fixes how much credit a buyer may claim. This chapter covers GSTR-2A and 2B, IMS, GSTR-3B reporting, blocking of credit, rules 88C and 88D, and a full reconciliation.

19.1 GSTR-2A, GSTR-2B and the history of rule 36(4)

GSTR-2A is dynamic and changes whenever a supplier files or amends GSTR-1. GSTR-2B is static, generated on the 14th of the following month, and shows credit available and not available. It is the basis for section 16(2)(aa).

Period	Credit allowed on invoices not in GSTR-2A or 2B
Up to 8 October 2019	No restriction
9 October 2019 to 31 December 2019	20% of eligible credit in GSTR-2A
1 January 2020 to 31 December 2020	10% (cumulative for February to August 2020 due to COVID relief)
1 January 2021 to 31 December 2021	5% of eligible credit in GSTR-2B
From 1 January 2022	Nil: only invoices in GSTR-2B (section 16(2)(aa))

Judicial view: Self-assessment and GSTR-2A

Union of India v. Bharti Airtel Ltd. (Supreme Court, 2021): The Court held that GSTR-3B is a self-assessed return based on the taxpayer's own records, and that the non-availability of GSTR-2A in the early months did not entitle the taxpayer to rectify earlier returns outside the scheme of the Act. The ruling puts the duty on the taxpayer to maintain and reconcile his own records rather than depend on portal statements.

19.2 Invoice Management System (IMS)

IMS started from the October 2024 tax period. Every invoice, debit note and credit note uploaded by suppliers appears in the recipient's IMS dashboard. The recipient can take one of three actions:

Accept: the record goes into GSTR-2B as credit available.
Reject: the record is excluded from GSTR-2B. For a rejected invoice, the supplier can correct it through GSTR-1A or a later GSTR-1. For a rejected credit note, the supplier's output tax in the next GSTR-3B is increased.
Pending: the record is held back and does not enter the current GSTR-2B. It moves to a later period when accepted.

No action means deemed acceptance when GSTR-2B is generated; after acting, the recipient can recompute GSTR-2B before filing GSTR-3B. The Finance Act, 2025 amended sections 38 and 39 to back this. From the October 2025 tax period, credit notes and certain amendment records can also be kept pending, but only for one tax period (one quarter for quarterly filers), and the recipient declares any credit reduction on accepting a credit note, with remarks for partial or no reversal. The features keep changing; check the latest GSTN advisory.

Date (for October 2026)	Action	By whom
1 to 11 November	Upload invoices in GSTR-1 (IFF for QRMP filers by 13th)	Supplier
Daily, from upload	Review records in IMS; accept, reject or keep pending	Recipient
14 November	GSTR-2B generated	Portal
14 to 20 November	Final IMS actions; recompute GSTR-2B if needed; follow up vendors on rejections	Recipient
By 20 November	File GSTR-3B using final GSTR-2B	Recipient
Next period	Correct rejected invoices through GSTR-1A or GSTR-1	Supplier

19.3 Reporting credit in GSTR-3B Table 4

Under CBIC Circular 170/02/2022-GST, Table 4A shows credit from GSTR-2B: imports of goods (4A(1)), imports of services (4A(2)), reverse charge (4A(3)), ISD (4A(4)) and others (4A(5)). Table 4B(1) records permanent reversals (rule 38, rules 42 and 43, section 17(5)); Table 4B(2) records reversals that may be reclaimed (rules 37 and 37A, goods not received). A reclaim of an earlier 4B(2) amount is taken in Table 4A(5) and disclosed in Table 4D(1); Table 4D(2) shows credit barred by section 16(4) or place of supply rules. The Electronic Credit Reversal and Re-claimed Statement tracks the 4B(2) balance.

19.4 Full monthly reconciliation

Every month the finance team should reconcile three sets of figures: credit in the books (purchase register), credit in GSTR-2B, and credit claimed in GSTR-3B. Differences are normal; unexplained differences are what cause notices.

Illustration 114: Books, GSTR-2B and GSTR-3B for October 2026

Pioneer Auto Parts Pvt. Ltd. records GST of Rs. 12,40,000 on purchases in October 2026, including Rs. 18,000 on repair of a director's car (blocked). Eligible credit in the books = Rs. 12,22,000.

Step 1: Items in books but not in GSTR-2B: supplier Arya Metals has not filed GSTR-1 (Rs. 60,000); supplier Deepak Tools uploaded late and it will appear next month (Rs. 35,000). Total Rs. 95,000.

Step 2: Items in GSTR-2B but not in October books: a September invoice accounted in September but uploaded late by the supplier (Rs. 22,000); an invoice for goods in transit, not yet received (Rs. 25,000); a credit note from a supplier not yet accounted (minus Rs. 12,000).

Step 3: GSTR-2B credit = Rs. 12,40,000 minus Rs. 95,000 plus Rs. 22,000 plus Rs. 25,000 minus Rs. 12,000 = Rs. 11,80,000.

Step 4: GSTR-3B: Table 4A Rs. 11,80,000; Table 4B(1) blocked Rs. 18,000; Table 4B(2) goods in transit Rs. 25,000. Net credit (4C) = Rs. 11,37,000.

Step 5: Check from the books: Rs. 12,22,000 minus Rs. 95,000 plus Rs. 22,000 minus Rs. 12,000 = Rs. 11,37,000. The figures agree.

Result: Rs. 95,000 is carried as "credit awaiting upload" and followed up; Rs. 25,000 is reclaimed through Table 4A(5) and disclosed in Table 4D(1) when the goods arrive; the credit note is booked in the purchase ledger.

19.5 Blocking of the credit ledger: rule 86A

Under rule 86A, the Commissioner or an authorised officer not below Assistant Commissioner may block credit in the ledger where he has reasons to believe it was fraudulently availed or is ineligible: for example invoices from non-existent suppliers, credit without receipt of goods, or tax not paid by the supplier. Blocked credit cannot be used or refunded. The block lapses after one year and can be lifted earlier.

Judicial view: Negative blocking under rule 86A

Samay Alloys India (P) Ltd. v. State of Gujarat (Gujarat High Court, 2022): The Court held that rule 86A allows blocking only of credit available in the ledger. Where the credit had already been used, the officer cannot block an equal amount of later credit by showing a negative balance. The Punjab and Haryana High Court took the same view, and on 18 June 2026 the Supreme Court dismissed the Revenue's special leave petition against that ruling in Union of India v. K.K. Alloys. The remedy for credit already used is a proper demand under section 73, 74 or 74A.

Illustration 115: Extent of blocking

The department suspects that Sona Traders took Rs. 12,00,000 of credit on invoices from a non-existent supplier. On the date of the order, Sona's credit ledger has a balance of Rs. 8,00,000.

Step 1: The officer may block up to Rs. 8,00,000, recording reasons to believe.

Step 2: The remaining Rs. 4,00,000 cannot be blocked against future credit.

Result: Sona should give the officer evidence of receipt and payment and, if the order lacks reasons, consider a writ petition.

19.6 Minimum cash payment: rule 86B

Rule 86B applies where taxable supplies (other than exempt and zero-rated) exceed Rs. 50 lakh in a month: credit cannot pay more than 99% of output tax. It does not apply where the proprietor, karta, managing director, any two partners or whole-time directors (or the person itself) paid income tax above Rs. 1 lakh in each of the last two years; where refund of unutilised credit above Rs. 1 lakh was received in the preceding year; where cash paid in the year exceeds 1% of output tax; or to Government bodies, PSUs and local authorities.

Illustration 116: Applying rule 86B

Rajdhani Steel Traders, a partnership, has taxable supplies of Rs. 80,00,000 in October 2026. Output tax at 18% = Rs. 14,40,000. Credit available Rs. 15,00,000. Only one partner has paid income tax above Rs. 1 lakh, so the exception does not apply.

Step 1: Maximum use of credit = 99% x Rs. 14,40,000 = Rs. 14,25,600.

Step 2: Minimum cash payment = Rs. 14,40,000 minus Rs. 14,25,600 = Rs. 14,400.

Result: Rajdhani pays Rs. 14,400 in cash and carries forward Rs. 74,400 of credit (Rs. 15,00,000 minus Rs. 14,25,600).

19.7 Intimations under rules 88C and 88D

Under rule 88C, where GSTR-1 liability exceeds GSTR-3B liability beyond the notified limit, form DRC-01B is issued. Under rule 88D, where GSTR-3B credit exceeds GSTR-2B credit beyond the notified limit, form DRC-01C is issued. The limits in use are more than Rs. 25 lakh and more than 20%; check the current notification. Within seven days the taxpayer must pay through DRC-03 with interest or explain in Part B, failing which GSTR-1 for the next period is blocked (rule 59(6)).

Illustration 117: Responding to DRC-01C

In October 2026 Metro Builders Supplies claimed credit of Rs. 1,60,00,000 in GSTR-3B against Rs. 1,25,00,000 in GSTR-2B. Difference Rs. 35,00,000, which is 28% of the GSTR-2B figure.

Step 1: Rs. 20,00,000 is credit reversed in Table 4B(2) in earlier months (unpaid invoices under rule 37 and goods in transit) and reclaimed in October through Table 4A(5) and Table 4D(1). It does not appear in the October GSTR-2B. Explain with the Electronic Credit Reversal and Re-claimed Statement and the payment and receipt records.

Step 2: Rs. 15,00,000 relates to invoices of a supplier who has not filed GSTR-1. This is not allowed under section 16(2)(aa). Pay Rs. 15,00,000 through DRC-03 (or reverse), with interest if the credit was used.

Result: Part B filed within seven days, showing the explanation for Rs. 20,00,000 and payment for Rs. 15,00,000. GSTR-1 filing stays open.

19.8 Year-end cut-off and vendor compliance

The period from September to November after the year end is where credit is lost or saved. The dates below are for FY 2025-26.

Date	Action
30 September 2026	Rule 37A test: identify suppliers who have not filed GSTR-3B for FY 2025-26 periods
By 20 October 2026	Rule 42 annual true-up (before the due date of the September return)
By 30 November 2026	Last date to claim missed FY 2025-26 credit (or GSTR-9 filing date if earlier); rule 37A reversals; credit notes and GSTR-1 amendments for FY 2025-26
By 31 December 2026	GSTR-9 and GSTR-9C for FY 2025-26; annual credit reconciliation in Table 8

Practice note

Rate vendors each month on GSTR-1 upload, GSTR-3B filing and rejections in IMS. Hold back the GST element of payment for vendors in default, and move volume away from repeat defaulters.

Before filing GSTR-9, run one last check of FY 2025-26 invoices still pending in IMS or missing from GSTR-2B. Filing GSTR-9 early closes the window for missed credit under section 16(4).

Chapter summary

• GSTR-2B, generated on the 14th, is the ceiling for credit on domestic invoices since 1 January 2022; the provisional credit under rule 36(4) is history.

• IMS lets the recipient accept, reject or keep invoices pending; no action means deemed acceptance, and credit note reversals are now declared by the recipient.

• Report permanent reversals in Table 4B(1), reclaimable reversals in 4B(2) and reclaims in 4D(1) (Circular 170/02/2022).

• Rule 86A blocks only the credit available in the ledger, for up to one year; rule 86B requires 1% cash payment above Rs. 50 lakh monthly taxable supplies unless an exception applies.

• DRC-01B and DRC-01C intimations must be answered within seven days, or GSTR-1 filing is blocked.

• Reconcile books, GSTR-2B and GSTR-3B every month, and finish FY 2025-26 credit work before 30 November 2026 or before filing GSTR-9, whichever is earlier.

PART E: REGISTRATION, INVOICES AND RECORDS

Getting into the system and documenting every supply

Registration is the gateway to GST: without it a business cannot charge tax, take credit or pass credit to its customers. Once registered, every supply must be documented in the prescribed way, reported electronically where required, and backed by records an officer can verify years later. This Part covers registration, invoices and notes, e-invoicing and e-way bills, and books of account.