The GST mechanics behind every rupee of input tax credit
Ten short sections on how credit is created, matched, accepted and lost: returns, eligibility, IMS, e-invoicing, reconciliation, integration, regulatory change, notices and the market. Stated as of September 2026, and consistent with the rules the product enforces.
What is taxed, and which government collects it
GST is a destination-based tax on the supply of goods and services, with credit for tax paid on inputs. A supply inside one state carries CGST and SGST in equal halves; a supply between states carries IGST. Time-of-supply rules decide the return period a transaction belongs to; place-of-supply rules decide which state's tax applies, and therefore which of a company's registrations can take the credit.
- Intra-state: ₹100 at 18% is ₹9 CGST plus ₹9 SGST
- Inter-state: ₹100 at 18% is ₹18 IGST
- From 22 September 2025 the main rates are 5% and 18%, with 40% for a small set of goods
- Credit follows the registration: CGST + SGST of one state can be used only by that state's GSTIN
GSTR-1, 2B, 3B, 9 and 9C: how the data flows
Suppliers report outward supplies in GSTR-1, due on the 11th of the following month for monthly filers. The buyer's GSTR-2B is generated on the 14th from what suppliers filed and what the buyer did in IMS. The buyer claims credit and pays tax in GSTR-3B, due on the 20th. The annual return is GSTR-9; above ₹5 crore of turnover the taxpayer also files GSTR-9C, a reconciliation statement that has been self-certified since FY 2020-21, with no chartered-accountant certification required.
- GSTR-1: supplier's outward supplies, due the 11th
- GSTR-2B: generated the 14th; the basis for credit since 1 January 2022
- GSTR-3B: summary return and payment, due the 20th
- GSTR-9C: self-certified reconciliation statement above ₹5 crore turnover
The rules that take credit away
Section 17(5) lists credits that are blocked however genuine the invoice: motor vehicles for carrying up to 13 people (with exceptions), food and beverages and similar items, club memberships, travel benefits for employees on vacation, and construction of immovable property on own account. Business hotel stays and business air travel are not on that list. Credit already taken is reversed if the supplier is not paid within 180 days (Rule 37). Under reverse charge the buyer pays the tax in cash through GSTR-3B and can take the credit once it is paid.
- Section 17(5): blocked categories, each with its own exceptions
- Rule 37: unpaid after 180 days, reverse the credit; re-claim on payment
- Reverse charge: pay in cash, then take the credit
- Section 16(4): claim by 30 November after the financial year
The Invoice Management System: accept, reject, keep pending
Since the October 2024 tax period, every record a supplier saves or files lands in the buyer's IMS, where it can be accepted, rejected or kept pending. When GSTR-2B is generated on the 14th, records with no action are deemed accepted into it. That is not final: the buyer can change actions and recompute GSTR-2B until it files GSTR-3B for the period. Pending keeps a record out and carries it forward, up to the Section 16(4) limit. From the October 2025 period, certain credit notes can be kept pending and the credit to reverse can be declared.
- Actions: accept, reject, keep pending; no action is deemed accepted on the 14th
- Changeable, with 2B recomputed, until GSTR-3B is filed
- Rejected records give no credit until the supplier corrects them
- A supplier amendment brings the record back for a fresh action
IRN, IRP and the rules that refuse an invoice
Businesses whose turnover has exceeded ₹5 crore in any year since 2017-18 must register B2B invoices on an Invoice Registration Portal, which returns an IRN (a 64-character hash of the supplier GSTIN, financial year, document type and number), an acknowledgement and a signed QR code. An IRN can be cancelled only within 24 hours; after that the supplier issues a credit note. From 1 April 2025, taxpayers with turnover of ₹10 crore or more cannot report a document more than 30 days after its date.
- Threshold: turnover above ₹5 crore (since 1 August 2023)
- Document numbers up to 16 characters (Rule 46)
- Cancellation within 24 hours only
- 30-day reporting window at ₹10 crore and above
Why exact matching fails, and what replaces it
An invoice in the books and a record in GSTR-2B describe the same supply when the supplier, number, date and amount agree. In practice they rarely agree exactly: separators, dropped leading zeros, rewritten financial-year tokens, paise rounding, mistyped dates, late filing, mistyped GSTINs and added freight lines all get in the way. A cascade tries the strictest rule first and loosens it step by step, lowering confidence at each step; a person reviews everything below the auto-accept line.
- Exact, normalised, FY variant and tolerance matches can be auto-accepted
- Late filing, GSTIN differences and value gaps go to a person
- Allocate matches globally, not in file order, or recurring bills cross-link
- Record the cause of every mismatch: supplier follow-up runs on it
Who talks to GSTN, and how
Taxpayers can use the GST portal directly, but software that reads GSTR-2B or IMS or files returns on their behalf connects through a GST Suvidha Provider (GSP), a licensed intermediary. The application (ASP) is the product the finance team uses; the GSP carries the calls. E-invoices go to an Invoice Registration Portal, several of which are run by private providers alongside the government's. Enterprise products usually support more than one GSP and IRP.
- ASP: the application the finance team works in
- GSP: the licensed route to GSTN's APIs
- IRP: where e-invoices are registered
- Evaluate providers on uptime, throughput, API coverage (IMS included) and schema fit
How the rules change
The GST Council, of the Centre and the states, recommends rate and policy changes. CBIC gives them legal effect through notifications and explains them through circulars, which bind tax officers but not courts. GSTN changes how the portal behaves and announces it in advisories. 2025 was a heavy year: GSTR-3B outward liability locked from the July 2025 period, returns barred three years after their due date, new rates from 22 September 2025, and IMS changes for credit notes from the October 2025 period.
- Council: recommendations
- CBIC: notifications (law) and circulars (interpretation)
- GSTN: portal behaviour and advisories
- Product rules need an effective date, because old and new rules coexist
When a notice arrives
A scrutiny notice (ASMT-10) points to a discrepancy in returns; a show-cause notice, summarised in DRC-01, can end in a demand order. Replies are due within weeks. The defence is the record: which invoices are involved, how each was matched, what was done in IMS, who decided and why. A product that logs every decision with its rule and actor turns that into an export; one that does not turns it into weeks of spreadsheet work.
- ASMT-10: scrutiny of returns
- DRC-01: summary of a show-cause notice
- Replies are due within a short window
- The evidence: invoice, match, IMS action, decision, actor, time
Where credit recovery sits in the market
Indian GST software falls into a few groups: compliance and filing suites such as Clear and IRIS, some of which are also GSPs and IRPs; providers on the GSP and IRP layer, such as Cygnet; compliance built into ERPs, such as SAP's; and recovery specialists focused on credit that horizontal tools miss, often in travel and expense. Finkraft describes itself as an AI-first finance platform used by 1,250+ enterprises in India and the UAE, spanning compliance, accounts payable and GST/VAT recovery, expense cards and corporate travel.
- Filing suites: breadth across returns, reconciliation and IMS
- GSP and IRP providers: the rails
- ERP-native compliance: inside SAP and similar systems
- Recovery specialists: travel and AP credit that horizontal tools miss
See it applied
The reconciliation, IMS inbox and travel ITC modules run these rules on a synthetic tenant, on today's calendar. The method page shows how they are tested.