Last updated: 1 April 2026. Over 35% of GST notices issued in 2025 were linked to Input Tax Credit (ITC) mismatches — that is, a difference between what you claimed in GSTR-3B and what was actually available in GSTR-2B. ITC is one of the most valuable features of GST, but it is also one of the most heavily scrutinised. Get it wrong and you will receive a system-generated DRC-01C intimation, or worse, a formal demand under Section 73 or 74 of the CGST Act.
Applicability Note: This guide is based on GST provisions applicable as of 1 April 2026. GST rules, especially ITC rules, are amended frequently. Always verify the current position on gst.gov.in or with a GST professional before acting.
Mistake #1: Claiming ITC Without Reconciling GSTR-2B First
This is the single most common ITC mistake — and the easiest to avoid.
Under GST, ITC is available to you only if the invoice appears in your GSTR-2B — the auto-drafted, static monthly statement that shows ITC actually uploaded by your suppliers. Claiming ITC based only on your own purchase register, without checking GSTR-2B, is a violation.
Why it triggers a notice:
The GST portal automatically compares your GSTR-3B ITC claim with your GSTR-2B every month. Under Rule 88D of the CGST Rules (notified via Notification 38/2023), if you claim more than 100% of your GSTR-2B ITC, the portal issues a system-generated intimation in Form DRC-01C directly to your login and registered email. You must respond within 7 days — either by paying the excess or by providing a valid explanation with documents. Failure to respond can block your next GSTR-1 filing and trigger demand proceedings under Sections 73 or 74.
How to fix it:
- Every month, download your GSTR-2B from the GST portal before filing GSTR-3B
- Reconcile it line-by-line against your purchase register
- Claim only ITC that appears in GSTR-2B — carry forward the rest to the next period when the supplier uploads the invoice
From October 2024 — IMS Update: The Invoice Management System (IMS) now lets you Accept, Reject, or keep Pending every invoice uploaded by your supplier in GSTR-1. Only invoices you Accept flow into GSTR-2B for ITC. Use IMS actively — review it before the 14th of each month so your GSTR-2B is clean before the GSTR-3B due date.
Mistake #2: Claiming Blocked ITC Under Section 17(5)
Section 17(5) of the CGST Act lists specific categories of goods and services on which ITC is permanently blocked, regardless of whether you paid GST on them. Many businesses unknowingly claim ITC on these items and face reversal demands later.
The main blocked ITC categories:
| Category | ITC Blocked? | Key Exception |
|---|---|---|
| Motor vehicles (≤13 seat capacity) | Yes — blocked | Allowed for dealers, taxi operators, driving schools |
| Food, beverages, outdoor catering | Yes — blocked | Allowed if canteen services are mandated under the Factories Act |
| Club memberships, gym fees, health services | Yes — blocked | No exception |
| Construction of immovable property (inputs like cement, steel, tiles) | Yes — blocked | Allowed if the property is a plant or machinery used in manufacturing |
| Group health/life insurance for employees | Yes — blocked | Individual health/life insurance is now GST-exempt (from 22 Sep 2025); corporate group policies remain taxable and ITC remains blocked |
| Personal expenses not used in business | Yes — blocked | Only the business-use portion is eligible |
| Goods lost, stolen, destroyed, gifted, or free samples | Yes — must reverse | If already claimed, reverse in GSTR-3B immediately |
How to fix it:
- Train your accounts team to flag purchases under these categories before ITC is claimed
- If ITC was wrongly claimed in a previous period, reverse it in the current GSTR-3B under Table 4(B)(2)
- When reversing, pay interest at 18% per annum (under Section 50(3)) calculated from the date of wrong claim to the date of reversal
Mistake #3: ITC on Invoices from Non-Compliant Suppliers
Your ITC is directly tied to your supplier's compliance. If your supplier does not file their GSTR-1 on time, or does not file GSTR-3B at all, the invoice will not appear in your GSTR-2B — and your ITC is either unavailable or automatically blocked.
How to fix it:
- Before onboarding a new vendor, check their GST compliance history on the portal (Services → Compliance → Compliance Rating or using GSTIN verification)
- Add a contractual clause requiring vendors to file GSTR-1 by the 10th or 11th of each month
- Monitor your GSTR-2B monthly — any missing invoices likely indicate a non-compliant supplier
- Follow up with suppliers whose invoices are consistently missing from GSTR-2B; repeated non-filing may warrant replacing the vendor
Mistake #4: Claiming ITC After the Section 16(4) Deadline
Under Section 16(4) of the CGST Act (as amended by the Finance Act 2022, effective 1 October 2022), there is a hard deadline for claiming ITC on any invoice or debit note of a financial year. You must claim it by the earlier of:
- 30 November of the following financial year, OR
- The date of filing your GSTR-9 annual return for that year
For FY 2025–26: The ITC claim deadline is 30 November 2026 (or when you file GSTR-9, whichever comes first). Any FY 2025–26 invoice you missed in monthly returns can still be picked up until that date — but not after.
How to fix it:
- As you begin FY 2026-27, do a full reconciliation of FY 2025-26 invoices — check for any missed ITC from April 2025 to March 2026
- Claim the missed ITC in GSTR-3B before 30 November 2026
- Do not file GSTR-9 early if you still have ITC claims to make — filing GSTR-9 ends your claim window
- Do not hold off on ITC claims intentionally thinking you can catch them in the annual return — it does not work that way; all claims must be in GSTR-3B before the deadline
Mistake #5: Ignoring DRC-01C Notices
Many business owners either do not check their GST portal regularly or dismiss DRC-01C intimations as non-serious. This is a critical error.
What DRC-01C means:
It is a system-generated intimation (not yet a formal demand notice) sent when your GSTR-3B ITC exceeds 100% of your GSTR-2B ITC. It is the GST portal's way of asking: "Why did you claim more ITC than is available in GSTR-2B?"
What you must do within 7 days:
- Option A: Pay the excess ITC amount in cash (DRC-03) and acknowledge in the intimation
- Option B: File a response explaining why the excess claim is valid — for example, if it's a supplier who is late in uploading invoices and you have the physical invoice and proof of payment
Consequences of not responding:
- You will be blocked from filing your next GSTR-1 or IFF under Rule 59(6) of the CGST Rules
- The excess ITC claim will be treated as a tax demand, attracting interest and penalty under Sections 73 or 74
- Repeated non-compliance can lead to scrutiny of all returns and potential suspension of GST registration
How to fix it:
- Set up email alerts for your GSTIN so all portal intimations land in your inbox
- Log in to the GST portal at least once a week — check the Dashboard → Notices section
- Respond to every DRC-01C within 7 days without exception
ITC Mistakes: Quick Reference Table
| Mistake | Trigger | Consequence | Fix |
|---|---|---|---|
| Claiming without GSTR-2B reconciliation | GSTR-3B ITC > 100% of GSTR-2B | DRC-01C notice → GSTR-1 block → demand | Reconcile GSTR-2B before filing every month |
| Claiming blocked ITC (Section 17(5)) | Audit, scrutiny, or GSTR-9 mismatch | Reversal + 18% interest + penalty | Flag blocked categories; train accounts team |
| ITC from non-compliant supplier | Supplier doesn't file GSTR-3B | ITC auto-blocked; GSTR-2B mismatch | Vet suppliers; add filing-compliance clause |
| Missing Section 16(4) deadline | Claiming ITC after 30 Nov deadline | ITC permanently lost; notice if already claimed | Reconcile FY annually before 30 November |
| Not responding to DRC-01C | No response within 7 days | GSTR-1 blocked; formal demand issued | Monitor portal weekly; respond within deadline |
Frequently Asked Questions
What is the maximum ITC I can claim compared to GSTR-2B?
Under Rule 88D of the CGST Rules, you can claim up to 100% of your GSTR-2B ITC in any month. Anything above 100% triggers an automatic DRC-01C intimation.
If my supplier didn't file their GSTR-1, can I ever claim ITC on that invoice?
Yes — but only after the supplier files their GSTR-1 and the invoice appears in your GSTR-2B. You can claim it in the month it appears, as long as you are within the Section 16(4) deadline (30 November of the following FY). Keep following up with your supplier.
What interest rate applies if I reverse wrongly claimed ITC?
If ITC was wrongly claimed but no demand has been raised, you can reverse it in GSTR-3B. The interest rate for wrongly availed ITC (whether fraudulent or otherwise) is 18% per annum under Section 50(3), calculated from the date the credit was claimed to the date of reversal.
Does filing GSTR-9 early affect my ITC claims?
Yes. Filing your annual GSTR-9 return triggers the Section 16(4) deadline for that FY. If you file GSTR-9 for FY 2025–26 in, say, September 2026, any ITC you missed claiming for FY 2025–26 is forfeited — even though the calendar deadline is 30 November 2026. Do not file GSTR-9 until all missed ITC for the year is claimed in GSTR-3B.
Worried about your ITC claims or received a DRC-01C notice? Our GST experts can review your returns and help you respond correctly → gstconsultancy.com