An input tax credit mismatch is investigated by answering three questions in order: is the credit available, meaning has the supplier reported the invoice so that it appears in GSTR-2B; is it eligible, meaning is the supply one on which credit is permitted at all; and is it still claimable, meaning has the statutory time limit passed. The order matters, because a credit that is ineligible under section 17(5) needs no investigation into supplier filing, and a credit that is out of time cannot be fixed by the supplier filing late.

The three questions

The decision path for any mismatch
Question	Source that answers it	If the answer is no
Is the supply one on which credit is permitted?	The nature of the expense, tested against section 17(5) of the CGST Act. Not answerable from 2B.	The credit is ineligible. It must be reversed regardless of what 2B shows, and it is an overstatement of credit and, if capitalised or expensed wrongly, of profit.
Is the credit available?	GSTR-2B for the period and subsequent periods	The supplier has not reported it. Whether the credit survives depends on whether they file, and by when.
Is it still claimable?	Section 16(4): the earlier of 30 November following the end of the financial year, or the date of filing the annual return for that year	The credit is lost. It becomes a cost, and the accounting treatment has to follow.

The decision path for any mismatch

Regulatory requirement

Section 17(5) of the CGST Act blocks credit on specified supplies, which have included motor vehicles within stated limits, food and beverages, outdoor catering, club and fitness memberships, works contract services and goods or services used for construction of immovable property on own account, and goods lost, stolen, destroyed or disposed of by way of gift or free sample, among others. The list has been amended more than once. Read the current text rather than relying on a prior year's file.

Working the supplier-filing question

Where an invoice is absent from 2B, the position depends on what the supplier does and when. Three provisions interact, and they carry different deadlines.

01Confirm the absence across the full year and beyondSearch every 2B for the year and for the following months. An invoice reported late appears in a later statement, and the difference is timing rather than non-filing. This resolves a large proportion of apparent non-filing cases.
02Establish whether the supplier's own return was furnishedRule 37A turns on whether the supplier furnished the relevant GSTR-3B by 30 September following the financial year in which the credit was availed. Where they did not, the recipient is required to reverse the credit by 30 November of that year, with interest consequences for late reversal.
03Check the 180-day payment condition separatelyRule 37 requires reversal where the recipient has not paid the supplier within 180 days of the invoice date. This is independent of 2B entirely, and a reconciliation that only compares the two documents will never surface it. It requires an ageing of unpaid purchase invoices.
04Establish whether the invoice is genuineA supplier with no filings at all, a GSTIN that has been cancelled, and an invoice for a supply nobody at the client can describe together form a different kind of problem. This is the point at which the engagement partner should be involved rather than the point at which a reversal is computed.

A cancelled or suspended supplier GSTIN found during this work is worth checking as at the invoice date rather than as at the date of the audit. A registration cancelled after the supply took place has different implications from one that was never valid.

What the client can actually do

Outcomes and the remedies available
Situation	What can be done	What cannot
Supplier filed late, credit appears in a later 2B	Claim the credit in the period in which the conditions were met, within the section 16(4) limit	Retain the credit in the original period as though it had always been available
Supplier has not filed, deadline for reversal approaching	Reverse the credit, pursue the supplier, and re-avail once the supplier files. Re-availment under Rule 37A is not subject to the section 16(4) limit.	Leave the credit in place on the basis that the supplier has promised to file
Credit blocked under section 17(5)	Reverse it, with interest as applicable, and correct the accounting so the tax forms part of the cost	Argue availability. 2B showing the credit is irrelevant to eligibility.
Credit not claimed within the section 16(4) limit	Recognise it as a cost	Claim it. The limit is not extended by the supplier having filed.
Payment to supplier outstanding beyond 180 days	Reverse under Rule 37 and re-avail on payment	Treat the availability of the credit in 2B as an answer to this condition
Credit taken under the wrong registration of the client	Correct the position for both registrations, which may mean a reversal in one and a claim in the other subject to time limits	Net the two off and treat the group position as correct

Outcomes and the remedies available

Quantifying credit at risk

The number the file needs is not the total of unmatched lines. It is the credit that may not be available, split by the reason and by whether the client can still do something about it. That number drives three decisions: whether a provision is required, whether a disclosure is required, and whether the amount is material enough to affect the opinion.

A credit-at-risk schedule
Category	Amount	Recoverable?	Accounting consequence
Blocked under section 17(5)	Quantified	No	Reverse. Tax becomes part of the cost of the supply, which may affect stock or an asset carrying amount.
Supplier non-filing, reversal deadline not yet passed	Quantified	Possibly, if the supplier files	Consider whether reversal is required at the reporting date, and whether interest would arise.
Supplier non-filing, reversal deadline passed	Quantified	Only on re-availment after the supplier files	Reversal with interest. Assess recoverability before carrying it as an asset.
Unpaid beyond 180 days	Quantified	Yes, on payment	Reverse and re-avail on payment. Usually a timing matter unless the payable is disputed.
Out of time under section 16(4)	Quantified	No	Write off to the profit and loss account.
Unexplained	Quantified	Unknown	This is the figure that should worry a reviewer. It has to be small, and individually investigated.

A credit-at-risk schedule

The conversation with the client

Most of this work produces information the client needs more urgently than the auditor does, because several of the remedies have deadlines. Raising a schedule of supplier non-filing in September is materially more useful than raising it in January, and it is worth structuring the engagement so that the input credit work happens early rather than alongside the rest of the fieldwork.

Common practice, not a requirement

Many firms run the input credit reconciliation as part of year-end fieldwork. Doing it monthly or quarterly is common in larger firms and is not a requirement of any standard, but it puts the findings in front of the client while the remedies are still open. The audit conclusion is drawn at the year end either way.

Recording the investigation

Each mismatch assigned to exactly one category, with the basis for the assignment.
The searches performed to establish absence, including the periods covered, so a reviewer can see that a later filing was looked for.
Evidence for each conclusion: the 2B statement and its download date, the invoice, the payment record, the supplier's filing position.
Credit at risk quantified by category, never as a single total across categories that mean different things.
The client's response on each category and whether the auditor accepts it.
The accounting entries proposed or passed, and whether any remain uncorrected at the reporting date.
A conclusion in the auditor's own words that states what was found, not that a reconciliation was performed.

How we think about this

Searching twelve statements for an invoice, ageing unpaid invoices against a 180-day rule, and sorting differences into categories are mechanical and should be done exhaustively rather than on a sample. Deciding whether a client's assurance that a supplier will file is credible enough to leave a credit in place is not mechanical, and it is exactly the sort of decision that should never be delegated to software.

This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.

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Investigating ITC mismatches during audit