Input Tax Credit Claim in GST

ITC Claim Mistake in GST (IGST, CGST & SGST)

Input Tax Credit Claim in GST are common and can lead to penalties or loss of credit. One frequent error is claiming IGST credit instead of CGST and SGST or vice versa. For example, if a local (intra-state) purchase is wrongly booked as an inter-state transaction, ITC is claimed under IGST instead of CGST and SGST, which is incorrect. Similarly, reversing ITC without proper justification or claiming ITC on ineligible items like personal expenses or blocked credits under Section 17(5) can cause issues. Mismatch between GSTR-2B and ITC claimed in GSTR-3B is another major reason for ITC rejection. Businesses must reconcile purchase records regularly with GSTR-2B and ensure proper classification of GST types. Timely corrections through amendment returns or DRC-03 can help rectify mistakes. Proper accounting, vendor compliance, and expert review can reduce such errors significantly.

Would you like a checklist to avoid ITC claim mistakes?

🔍 ITC Claim Mistakes in GST – A Major Compliance Concern

Input Tax Credit (ITC) is a key provision under the Goods and Services Tax (GST) regime. It allows taxpayers to claim credit of the GST paid on business-related purchases. However, mistakes—especially in classifying IGST, CGST, and SGST—can cause serious compliance issues, departmental notices, and financial penalties.

⚠️ Common Mistakes While Claiming ITC – CGST, SGST, IGST

One major error is wrong mapping between CGST, SGST, and IGST. For example, IGST may be incorrectly claimed under CGST/SGST due to incorrect entries or wrong tax codes in accounting software.

Another mistake is claiming ITC on ineligible inputs like motor vehicles, employee refreshments, or personal expenses, which are blocked under Section 17(5). Also, claiming ITC on invoices not reflected in GSTR-2B or received late leads to disallowance.

💸 Incorrect Use of IGST Credit – A Costly Error

ITC utilization has a specific order:

 

1. 1. IGST ➡️ IGST liability

1. 1. Then ➡️ CGST

1. 1. Then ➡️ SGST

Many businesses skip this and use CGST/SGST first, leaving IGST unused. This mis-utilization affects cash flow and attracts scrutiny. Similarly, cross-utilization (CGST used for SGST) is not allowed and leads to interest and penalties.

📬 Impact of ITC Mismatches and Errors

Wrong ITC claims—due to misclassification, ineligible inputs, or mismatches—result in:

 

• • Notices under Section 61 or 73

• • Reversal of ITC + 18% interest

• • Risk of adjudication under Section 74 with 100% penalty

These also distort financials and can affect income tax calculations and business credibility. Reversing ITC after year-end may require voluntary payment via DRC-03, hurting cash flow.

🏛️ Kerala High Court’s Clarification on ITC Claims

In a major judgment, the Kerala High Court stated that bona fide errors in ITC claims can be corrected if the base data exists in the return. However, corrections are not allowed after assessments or the expiry of the limitation period. Rightful ITC cannot be denied on procedural grounds alone.

✅ Best Practices to Avoid ITC Mistakes

 

• • Reconcile purchase register with GSTR-2B every month

• • Avoid manual entries in GSTR-3B

• • Use smart accounting and reconciliation tools

• • Train staff on GST classification and eligibility

• • Conduct regular internal audits

• • Consult GST experts or Chartered Accountants

• • Maintain proper invoice documentation

🔒 Be Cautious, Be Compliant

Input Tax Credit (ITC) is a powerful mechanism under GST that helps businesses reduce their overall tax liability. By claiming credit on taxes already paid on purchases and expenses, businesses can lower the amount of GST they need to pay on their sales. However, while ITC can ease the tax burden, incorrect or ineligible claims can lead to serious consequences. These include penalties, GST notices, audits by the department, and even reversal of credit with interest.

Many times, small errors like mismatched invoices, missing vendor details, or failure to reconcile GSTR-2B with purchase records can turn into big compliance issues over time. What seems like a minor oversight today may snowball into a major problem later.

To avoid such situations, it’s important to stay fully compliant with GST rules. Keep your purchase and expense records well-organized, maintain proper invoice details, and ensure timely and regular reconciliation of ITC claimed with GSTR-2B or GSTR-2A data.

A little diligence goes a long way in ensuring a hassle-free GST experience. Correct ITC claims not only save money but also safeguard your business from future legal and financial troubles. Stay alert, stay compliant, and enjoy the benefits of proper GST management.