The Goods and Services Tax (GST) regime has introduced a very controlled tax compliance system. One of its most important characteristics is the Input Tax Credit (ITC), through which businesses are permitted to claim credit against tax paid on purchases. But with the advantage comes rigorous scrutiny. Any mismatch between ITC reported in GSTR-3B and ITC shown in GSTR-2B is likely to invite a notice DRC-01C from the GST authorities.

Dealing with such mismatch notices is crucial to avoid penalties, interest, and the blocking of ITC. In this guide, we’ll discuss what a DRC-01C notice is, why it occurs, and most importantly, how to effectively manage it using modern tools like gst return filing software from Webtel.

What is a DRC-01C Notice?

Notice DRC-01C is a notice given by the GST department to notify a taxpayer of a discrepancy between the Input Tax Credit (ITC) claimed in their GSTR-3B return and the ITC available in GSTR-2B, which is auto-populated on the basis of data uploaded by suppliers.

The reason behind this notice is to provide an opportunity to taxpayers to either:

• Pay the misclaimed excess ITC along with interest, or
• Describe the distinction in terms of valid reasons and evidentiary facts.
• A response to a notice of DRC-01C should be furnished in Part B of the notice itself within the stipulated period to preclude further action in the form of a demand notice or rejection of ITC claims.

Why do ITC mismatches happen?

• ITC mismatches can take place due to a variety of reasons such as:
• Suppliers late or non-filing: Invoices of Suppliers who do not file GSTR-1 in time won't reflect in your GSTR-2B.
• Incorrect GSTIN or invoice numbers: Typing invoice information incorrectly while inputting can cause mistakes.
• Duplicate invoices in GSTR-3B: Claiming ITC against the same invoice for multiple months.
• Claiming ITC against ineligible goods: Goods such as motor vehicles or those intended for consumer consumption are not eligible under GST.
• Timing differences: Invoices may be reported in a taxation period but are reflected in GSTR-2B a month later.

Consequences of not responding to DRC-01C Notice

If a taxpayer does not file a response to Form GST DRC-01C for a tax period, it may result in penalties, interest and blocking of ITC. Further, for the subsequent tax period, he will not be able to file his GSTR-1/IFF.

How to handle a DRC-01C Notice: A Step-by-Step Guide

Once the intimation in Form DRC-01C Part A is generated, a Reference Number will be assigned. You will receive the intimation via email and SMS, which will include the Reference Number. Please ensure to check both your email and mobile messages for the intimation and keep the Reference Number handy for future reference and correspondence.

You can also check this intimation on GST Portal.

Step 1: Login into the GST Portal

Visit the official GST portal, and go to:

• Dashboard > Services > Returns > Return Compliance > ITC Mismatch (DRC-01C)

You can observe the notice details here:

• ITC declared in GSTR-3B
• ITC visible in GSTR-2B
• Difference between the two
• Download the data to begin your reconciliation.

Step 2: Reconcile GSTR-3B with GSTR-2B

Use an automated GST Return Filing Software or the best GST software that supports AI enabled intelligent reconciliation between returns. These tools help you:

• Match invoices line-by-line
• Flag mismatched, missing, or duplicate entries
• Identify suppliers who have not filed their returns
• Without such a software, this reconciliation would be labor-intensive and prone to human error, especially for companies with high volumes of transactions.

Step 3: Determine the Reason for the Mismatch

On running the reconciliation report, classify mismatches into:

• Actual mismatches (e.g., supplier non-filing)
• Clerical mistakes (e.g., wrong invoice numbers)
• Difference in timing (e.g., invoice appearing in a different month)

This process assists in the determination of whether the excess ITC is to be paid or a cause needs to be furnished.

Step 4: Request Vendors to Rectify

Contact suppliers whose invoices are not appearing in GSTR-2B and request them to

• File their GSTR-1 for the concerned period
• Rectify any incorrect entries in their returns

Step 5: Take Action – Pay or Respond

You have two alternatives now:

A. Pay the Excess ITC

In case of a genuine mismatch, pay the amount using Form DRC-03. This comprises:

• Tax amount
• Interest (working out at 18% per annum)
• After payment, cross-reference DRC-03 ARN in the response section of DRC-01C Part B.

B. Provide Explanation

If you are convinced the ITC claim is legitimate:

• Write a justification letter
• Append reconciliation reports, invoices copies, supplier correspondence, and other supporting documentation
• Upload all in DRC-01C Part B
• Submit the response within the provided time as specified (typically 7 days from notice date).

How GST Return Filing Software Can Help

Manual handling of DRC-01C notices is time consuming and prone to errors. That is where Webtel's best GST software comes in use.

Key Features of Best GST Software:

• Auto-importing of GSTR-2B and GSTR-3B details
• Real-time reconciliation with mismatch notifications
• Vendor tracking with notice
• Payment integration of DRC-03
• Audit-ready reports
• GST notice management dashboard

Avoiding Future DRC-01C Notices

To prevent the hassle of repeating ITC mismatch notices in the future, follow these best practices:

• Conduct monthly reconciliations before filing GSTR-3B.
• Utilize Webtel's best GST software to monitor and authenticate each invoice.
• Timely filing by ensuring regular communication with the suppliers.
• Claim ITC on blocked credits as has been specified under Section 17(5) of the CGST Act.
• Train your finance team or appoint a GST consultant.
• Keep correct records of invoices, payments, and returns.

Conclusion:

DRC-01C notices are in accordance with the initiative of the GST department to have more compliance and less tax evasion. Receiving such a notice, though unexpected, can be dealt with effectively through timely action and reconciliatory process.

With secure gst return filing software and the top GST software, organizations are able to identify mismatches in time, react correctly, and remain compliant. Not only do you prevent penalties when you take a technology-based GST approach, but you build a solid, audit-compliant tax foundation for your organization as well.

Simplify GST compliance with Webtel- India's top-rated GST software endorsed by professionals. Manage ITC mismatches smoothly, file accurate returns, and evade penalties through smart automation and real-time reconciliation. Be a leader in tax compliance. Begin using Webtel today and simplify GST return filing!