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Input Tax Credit And Its Roots To GSTR 2 Return

input tax credit gstr 2 return

There was a sense of excitement in the country about GST. People wanted to understand the process of GST when it was introduced. Through this article, I am trying to present you some points about the process of filing returns and how input tax finds its roots to GSTR 2 return.

As we know that trade and industries would be required to file returns once a month and pay tax on monthly basis. Which is now amended and now the traders have been replaced grouped basis on turnover criteria where traders making an annual turnover of more than 1.5 Crores would be required to file monthly returns and whereas traders whose annual turnover is less than 1.5 Crores would be required to file returns on monthly basis.

But in both the cases tax has to be paid on monthly basis in Form GSTR-3 which is the consolidated return containing summary of taxes on outward supplies and inward supplies.

Here it’s worth to note that the input credits of taxes that have been paid on purchases will be automatic and will be available to every trader as the whole process of filing returns is online.

Where the merchandise sold by the traders only comprises of sales to retail customers, then the returns of such a trader will be very simple – the summary of rate-wise turnover will be shown.

If a trader avails of the composition scheme and has a turnover of less than 1.5 Crore, such a trader will not have to file returns every month, but every three months, showing the total turnover achieved by him and paying tax on them at flat rate of 1%. And whereas traders selling business-to-business merchandise must give specific details for each sale invoice in the return GSTR-1.

When a trader’s sales details are entered into the form GSTR-1 on the GST website by the 10th of the month, the complete details of purchases made by him from the buyer will be seen in his GSTR-2 (GST Online Account). That means it will auto-populate.

And when the buyer (who is a purchaser) of merchandise gives approval to the merchandise details filled by his seller merchandiser after thoroughly checking the details furnished therein, the merchants or traders GSTR-3 return will appear in the computer itself.

The process is such that the GSTN auto prepares the return from the details furnished in GSTR 1 and GSTR 2 returns and show the merchant’s tax liability and the complete details of the input tax credit, along with net tax liability.

Then he would be required to deposit the difference between tax liability and input tax credit. And at last, the trader will have to submit the final return made by computer by clicking on GSTR-3 and submitting it by the 20th of the month.

There is a position in business-to business transactions which we call the input tax credit reversal, which is to return the input tax credit taken.

Positioning How your Input Tax Credit is Indexed to or have its roots to your GSTR 2 Return
Case 1: If the trader from whom you buy goods has shown that transaction in his return by the 10th of the month You will get input tax credit and it will be reflected in your GSTR 2 return as it will be auto populated from the details furnished by your trader.
Case 2: If the trader from whom you buy goods does not put that invoice in his return GSTR-1 Even then you will get an opportunity to show it in the GSTR-2 return by the 15th of the month, and by doing so, you will get full input tax credit.

In case no 2 as a buyer of merchandise you have to take few actions. You would have to contact the businessman (the supplier) and explain that he must show that transaction in his return so that there is no reversal of the input tax credit received in the next month.

And for this whole process one would get 30 days for this and if even then the merchant who sells the merchandise does not accept this transaction and does not show it in his return, then the claimed input tax credit by you would be reversed in your returns next month.

So jeopardizing with return filing process by any one person in distribution lane will cause in credit reversal for every one in the distribution lane. Though the government has come up with Compliance rating window that would enable the business man to choose only those dealers who have not faulted with the returns and have paid the taxes collected within the due dates after assessing the liability.

The business man could view the compliance score rating from the GST Portal itself. So input tax credit is definitely indexed to GSTR2 or we can say that the journey of credits ends up at GSTR 2 junction. Where only those credits are included in the final returns of tax payers which have been correctly assessed, inked in the GST 1 return and paid to the treasury within the due dates.


Though till date the utility for filing GSTR 2 and GSTR 3 has not been linked to GST Portal and we are filing our GSTR-1 and GSTR3B returns there won’t be a change in the process of flow of returns.

Once the GSTR2 and GSTR-3 return are made available on the portal the tax liability and tax credits could be carried to GSTR2 and finally to GSTR 3 where net tax liability or credit could be ascertained and input tax credit could get its final status.

Speaking of Input Tax Credit and the dependence over technology for filing returns and matching of credits with the details furnished by counterparty to supply one would definitely require an accounting software. And Tally.

ERP 9 is one of the best accounting software which every registered business would want to acquire for it accounts for simplicity, breaking every aspects of GST into modules like for Return filing GSTR-1, 2 and GSTR 3B, detailing of Finer details from GST Returns such as Unique Quantity Measurement (UQM), exporting the returns into JSON file supported format which is accepted by GST Portal and all these and many more under one roofing.

Also Read: GST: Relief For Retailers As GST Invoicing Norms Eased

(Disclaimer: This is a guest post submitted on Techstory by mentioned authors. All the contents and images in the article have been provided to Techstory by the authors of the article. Techstory is not responsible or liable for any content in this article.)



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