Input tax credit: why the auto-drafted statement is the source of truth
Every business books input credit from purchase invoices as they arrive. Entitlement, however, depends on the supplier having reported the same invoice — and on you paying them within a defined period. Businesses that discover this in year three discover it as a demand.
2 min readOadbox
Three conditions, not one
Holding a tax invoice is necessary and not sufficient. The invoice must also appear in the auto-drafted statement generated from your suppliers' filings, the goods or services must have been received, and payment must reach the supplier within the prescribed period or the credit reverses.
Most internal processes check the first condition thoroughly and the other two not at all.
Reconcile monthly, chase in the same month
The comparison is mechanical: your purchase register against the auto-drafted statement, matched on supplier GSTIN, invoice number, date and tax amount. What comes out is a list of four categories, each with a different action.
- Matched — nothing to do.
- In your books, not in the statement — chase the supplier now, while the period is still open to them.
- In the statement, not in your books — an invoice you have not recorded, or one not yours.
- Matched with a value difference — usually a credit note either side has not booked.
The deadline is annual and it is hard
Credit for a financial year cannot be claimed indefinitely. There is an outer limit tied to the following year's filings, after which the credit is simply gone, however genuine the underlying purchase.
This is why the reconciliation cannot be a year-end exercise. By the time the annual return is being prepared, some of what you find is already unrecoverable.
Make supplier compliance a commercial term
Your credit depends on someone else filing on time. That is a supplier performance question, and it belongs in procurement rather than in accounts.
Businesses that track a supplier-level compliance record — and hold a payment tranche until an invoice appears — recover far more credit than businesses that treat it as a finance problem to be reconciled after the fact.
The statutory conditions, the payment window and the outer time limit for claiming credit have all been amended since GST began. Confirm the current provisions before setting policy.
Written by the Oadbox team. Something here not match how it works in your business? We would genuinely like to hear it — connect@oadbox.com.