"GST 2.0" is the name used for the GST rate rationalisation from 22 September 2025 (slabs of 5%, 18% and 40%). Alongside it, the GST portal has tightened how returns are filed, and those portal changes are what affect monthly ITC reconciliation for SMEs.
The old approach, where you file GSTR-3B with ITC from your purchase register and sort out mismatches later, is no longer safe. ITC is legally limited to GSTR-2B, the portal flags excess claims, and your output liability can no longer be edited in GSTR-3B.
Here is what changed and how to fix your process.
What Changed on the Portal
Four mechanisms now work together:
1. ITC Only as per GSTR-2B (since 1 January 2022)
Section 16(2)(aa) of the CGST Act and Rule 36(4) of the CGST Rules allow ITC on supplier invoices only when they are reflected in your GSTR-2B. The earlier provisional 5% credit over GSTR-2B was removed from 1 January 2022.
2. Invoice Management System (IMS, from October 2024)
Every supplier record appears in IMS for you to accept, reject or keep pending. Records with no action are treated as "deemed accepted" when GSTR-2B is generated on the 14th of the following month, and flow into GSTR-2B. Rejected and pending records stay out. You can still change an action after the 14th, until you file GSTR-3B, but you must then recompute GSTR-2B. Using IMS is optional; if you take no action, everything is deemed accepted.
3. DRC-01C for Excess ITC (Rule 88D, from August 2023)
If the ITC you claim in GSTR-3B exceeds the ITC in GSTR-2B beyond the thresholds set by the system, the portal issues an intimation in Form DRC-01C. You must pay the excess through DRC-03 or explain the difference in Part B of DRC-01C. If you do neither, you cannot file GSTR-1 or IFF for the next period.
4. GSTR-3B Liability Lock (from July 2025 tax period)
Per the GSTN advisory, the output tax liability auto-populated in Table 3 of GSTR-3B from your GSTR-1, GSTR-1A or IFF can no longer be edited in GSTR-3B. Corrections to liability must be made through GSTR-1A before filing GSTR-3B. The ITC in Table 4 is also auto-populated from GSTR-2B; watch the GST portal advisories for any change to its editability.
Why the Old Process Breaks
The Old Process
- Receive invoices from suppliers
- Enter purchases in your accounting software
- Total up ITC from your purchase register
- Enter ITC in GSTR-3B
- File GSTR-3B
- Maybe reconcile with GSTR-2B at year-end
- If DRC-01C came, respond and adjust (see our DRC-01B and DRC-01C reply guide)
Why It Fails Now
ITC claimed in Step 4 above what GSTR-2B shows is not allowed by Section 16(2)(aa). It can trigger a DRC-01C intimation, and any excess you have used to pay tax must be repaid with interest under Section 50(3), and can be demanded under Section 73 or 74.
The critical failure point is between Step 3 and Step 5. Your books may show Rs 5,00,000 ITC, but GSTR-2B shows only Rs 4,20,000 because some suppliers have not filed GSTR-1. You can claim only Rs 4,20,000 this month. The Rs 80,000 difference is claimed in the month it appears in GSTR-2B.
The New Process You Must Follow
Week 1: Record Purchases (Same as Before)
Continue entering purchase invoices in your accounting software. No change here.
Before the 14th: Review IMS (New Step)
Log in to the GST portal and review the records in IMS. Accept valid invoices, reject incorrect ones, and keep pending only those you are still verifying.
14th: Download GSTR-2B
As soon as GSTR-2B is generated, download it and compare it against your purchase register.
14th to 18th: Reconcile (Critical Step)
Match your ITC figure with GSTR-2B. Three outcomes:
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Match: Your books and GSTR-2B agree. File GSTR-3B as normal.
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Your books are higher: Some suppliers have not filed GSTR-1. Reduce your GSTR-3B ITC to the GSTR-2B figure. Track the difference and claim it when it appears in a later GSTR-2B.
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GSTR-2B is higher: You have credits you did not record, or records that are not yours. Investigate, update your books, and reject wrong records in IMS (then recompute GSTR-2B).
By the 20th: File GSTR-3B
File with reconciled ITC that does not exceed GSTR-2B. The due date is the 20th for monthly filers, and the 22nd or 24th of the month after the quarter (depending on your State) for QRMP filers.
The Supplier Problem
For most SMBs, the biggest pain point is not the new process itself. It is that your ITC depends on your supplier's filing discipline.
If your supplier files GSTR-1 on time, their invoices appear in your GSTR-2B, and you can claim ITC. If they do not file, the invoices do not reach your GSTR-2B, and your ITC is stuck.
There is a second check: under Rule 37A, if a supplier reports the invoice in GSTR-1 but does not file GSTR-3B for that period by 30 September following the end of the financial year, you must reverse that ITC in a GSTR-3B filed by 30 November. You can re-avail it once the supplier files.
Scale of the Problem
An illustrative SMB with 30 suppliers might have:
- 25 suppliers who file on time (83% of ITC available)
- 3 suppliers who file late (10% of ITC delayed by 1-2 months)
- 2 suppliers who rarely file (7% of ITC at risk)
That 7% can represent lakhs of rupees in stuck ITC for a mid-sized business.
What You Can Do
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Track supplier filing compliance. Maintain a simple tracker showing which suppliers file GSTR-1 on time each month.
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Send formal reminders. Before the 10th of each month, send a reminder to suppliers who were late in previous months (monthly GSTR-1 is due on the 11th, IFF on the 13th).
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Add GST filing clauses to supplier agreements. Include a clause requiring timely GSTR-1 filing, with the right to withhold payment proportional to the ITC risk.
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Evaluate supplier alternatives. For consistently non-compliant suppliers, consider switching to suppliers who file on time. The ITC you lose from a non-filing supplier may exceed any price advantage they offer.
Reconciliation in Practice
For Businesses with Under 50 Invoices/Month
Manual reconciliation is feasible:
- Download GSTR-2B in Excel
- Sort your purchase register by supplier GSTIN
- Match invoice by invoice
- Flag mismatches
- Adjust GSTR-3B accordingly
Time required: 1-2 hours per month.
For Businesses with 50-200 Invoices/Month
Semi-automated reconciliation recommended:
- Use accounting software that imports GSTR-2B data
- Run the automatic matching feature
- Review only the mismatches manually
- Approve the reconciled ITC figure
Time required: 30-60 minutes per month with the right software.
For Businesses with 200+ Invoices/Month
Professional reconciliation service recommended:
- Tax Garden or similar service imports both your books and GSTR-2B
- Automated matching identifies discrepancies
- Professional team resolves mismatches with supplier follow-up
- Reconciled GSTR-3B is prepared and filed
Time required: Minimal on your end.
Cost of Getting It Wrong
If you do not adapt your process:
| Consequence | Financial impact |
|---|---|
| GSTR-3B filed late while you sort out ITC | Late fee of Rs 50 per day (Rs 25 CGST plus Rs 25 SGST), or Rs 20 per day for a nil return, capped per return by turnover (Notification 19/2021-CT), plus 18% interest on tax paid late in cash (Section 50(1)) |
| ITC claimed above GSTR-2B and used to pay tax | Excess must be repaid with interest under Section 50(3), and can be demanded under Section 73 or 74 |
| DRC-01C intimation not answered | GSTR-1 or IFF for the next period cannot be filed until you pay through DRC-03 or reply in Part B (Rule 88D) |
| Supplier has not filed GSTR-3B by 30 September | ITC must be reversed by 30 November under Rule 37A, with interest if it is not reversed |
| ITC not claimed in time | ITC lost after 30 November following the financial year, or the annual return date if earlier (Section 16(4)) |
Common Questions from Business Owners
"Can I file GSTR-3B with lower ITC and claim the rest later?" Yes. You claim only the GSTR-2B amount now and pick up the remaining ITC in the month it appears in GSTR-2B. The time limit under Section 16(4) is 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier. For FY 2025-26 invoices, that is 30 November 2026.
"What if my supplier goes out of business?" If a supplier permanently stops filing GSTR-1, the ITC on invoices they never reported is lost. You should attempt to recover the GST amount from the supplier commercially.
"Is there a tolerance threshold?" Legally, no: ITC is limited to what GSTR-2B shows. The DRC-01C intimation under Rule 88D is issued only when the excess crosses the thresholds set on the portal (reported as more than Rs 25 lakh and more than 20%), but a smaller excess is still not allowed and can be picked up in scrutiny or audit.
Let Tax Garden Fix Your GST Process
Switching from the old file-first approach to a reconcile-first process requires automating your monthly filing. Tax Garden's Compliance Standard plan processes IMS actions and GSTR-2B reconciliation, supplier follow-up, and GSTR-3B filing every month.
