Here is the bottom line: the GST system now runs an automated cross-check between your GSTR-1, your GSTR-3B and your GSTR-2B every single month, and when the numbers do not line up it fires an intimation at you — Form DRC-01B for a liability gap, or Form DRC-01C for an input-tax-credit gap. You get seven days to explain or pay, and if you ignore it your next GSTR-1 is simply blocked. These are not scrutiny notices from an officer; they are system-generated, and most are caused by ordinary timing differences, not fraud.
The good news is that almost every one of these mismatches is preventable with a habit that takes ten minutes a month. This article decodes the two mismatches that actually generate notices — the GSTR-1 vs GSTR-3B liability gap and the GSTR-2B vs GSTR-3B credit gap — explains exactly what triggers DRC-01B and DRC-01C, and gives you the reconciliation routine that keeps them from ever landing.
First, what these three returns are supposed to say
The whole reconciliation logic rests on the fact that the same numbers appear in more than one place and are meant to agree:
| Return | What it reports | Nature |
| GSTR-1 | Invoice-level details of your outward supplies (your sales) | You file it |
| GSTR-3B | Summary return: total output tax payable and ITC claimed; this is where you actually pay | You file it |
| GSTR-2B | Auto-drafted statement of ITC available to you, built from your suppliers’ GSTR-1s | System generates it |
Two comparisons matter. Your output tax in GSTR-3B should broadly match the liability you declared in GSTR-1 (you should pay tax on what you said you sold). And the ITC you claim in GSTR-3B should not exceed the ITC the system says is available in GSTR-2B (you should not claim more credit than your suppliers have reported). When either comparison breaks beyond a set tolerance, a notice follows.
Mismatch 1: GSTR-1 higher than GSTR-3B — the DRC-01B route (Rule 88C)
This is the liability mismatch. It arises when the output tax you declared in GSTR-1 (or the Invoice Furnishing Facility) for a period is more than the output tax you actually paid through GSTR-3B for the same period. In plain terms: you told the department you sold X, but you paid tax on less than X.
When the difference crosses the threshold configured in the system, Rule 88C kicks in and you receive Form DRC-01B. It has two parts. Part A is the system’s statement of the difference it has found. Part B is your reply, which you must file within seven days. You have exactly two options:
- Pay it: deposit the shortfall (with interest) using Form DRC-03, then quote the ARN of that payment in Part B; or
- Explain it: select a reason from the dropdown (or “any other reason”) and justify why the gap is legitimate — for example, the sale was reported in GSTR-1 of one month but the tax was correctly paid in GSTR-3B of another.
The consequence of doing nothing is immediate and automatic: under Rule 59(6), you cannot file your next GSTR-1 / IFF until you have responded to the outstanding DRC-01B. And the unresolved amount can be recovered under Section 79 without a separate show-cause notice, because you have effectively already admitted the liability in your own GSTR-1.
Mismatch 2: GSTR-3B credit higher than GSTR-2B — the DRC-01C route (Rule 88D)
This is the ITC mismatch, and in practice it is the one businesses see most often. It arises when the input tax credit you claimed in GSTR-3B exceeds the credit available to you in GSTR-2B by more than the prescribed limit. In other words, you claimed more credit than your suppliers have actually reported.
Rule 88D, effective from 4 August 2023, drives this. The system flags the case where GSTR-3B credit exceeds GSTR-2B credit beyond the configured tolerance — widely understood to be a difference of more than 20% and more than Rs. 25 lakh — and issues Form DRC-01C. Again Part A is the system’s finding; Part B is your reply within seven days, where you either pay the excess (with interest) via DRC-03 or give reasons with supporting documents. Ignore it, and once more Rule 59(6) blocks your next GSTR-1, and the excess can be pursued under Sections 73 or 74.
| DRC-01B (Rule 88C) | DRC-01C (Rule 88D) | |
| What mismatches | Liability: GSTR-1 > GSTR-3B | Credit: GSTR-3B ITC > GSTR-2B ITC |
| Core question | Did you pay tax on everything you sold? | Did you claim only the credit you’re entitled to? |
| Time to respond | 7 days | 7 days |
| How to respond | Pay via DRC-03 or explain in Part B | Pay via DRC-03 or explain in Part B |
| If you ignore it | Next GSTR-1 blocked (Rule 59(6)); recovery u/s 79 | Next GSTR-1 blocked (Rule 59(6)); demand u/s 73/74 |
Why the numbers drift apart in the first place
Most mismatches are innocent timing or classification differences, not evasion. The usual culprits:
For the liability (GSTR-1 vs 3B) gap
Reporting an invoice in GSTR-1 of one month but paying the tax in GSTR-3B of the next; amending an invoice upward in GSTR-1 without correspondingly increasing the 3B liability; or a data-entry slip where a large invoice was keyed into GSTR-1 but the summary figure in 3B was understated.
For the ITC (2B vs 3B) gap
This is where genuine, defensible reasons abound, and the DRC-01C reply dropdown recognises many of them: your supplier filed his GSTR-1 late, so the credit appears in a later month’s GSTR-2B than when you booked it; the supplier wrongly reported a B2B invoice as B2C; an inter-state supply was shown as intra-state (or vice versa); credit on goods received in instalments; import IGST and SEZ credits that do not always flow through GSTR-2B cleanly; or re-availment of credit reversed in an earlier period. None of these are wrong — they simply need to be explained rather than paid.
Worked example: reading a DRC-01C
Suppose in a month your books show eligible ITC of Rs. 12,00,000 and you claim it in GSTR-3B. But GSTR-2B for that month shows only Rs. 8,50,000, because two of your suppliers filed their GSTR-1 a few days after the 2B cut-off. The system sees a Rs. 3,50,000 excess and, if it crosses the threshold, issues DRC-01C.
| Particulars | Amount | Correct action |
| ITC claimed in GSTR-3B | Rs. 12,00,000 | — |
| ITC available in GSTR-2B | Rs. 8,50,000 | — |
| Difference flagged | Rs. 3,50,000 | — |
| Of which: suppliers filed late (credit valid, now in next 2B) | Rs. 3,50,000 | Explain in Part B — no payment |
Here the right response is not to pay. You file Part B, select the reason “ITC not reflected as supplier’s return filed late,” and state that the credit has since appeared in the following month’s GSTR-2B. You keep the supplier invoices and the later 2B as proof. Paying in this situation would mean surrendering credit you are legally entitled to.
Contrast that with a case where Rs. 50,000 of the gap is credit on a car repair or a staff-welfare expense that is actually blocked under Section 17(5). There you should reverse and pay that portion via DRC-03 with interest, and explain only the balance. The skill in answering a DRC-01C is separating the legitimate timing differences from the genuinely ineligible claims.
The ten-minute monthly reconciliation that prevents all of this
You avoid these notices by never letting the returns drift. A simple discipline before you file GSTR-3B each month:
- Match GSTR-1 to 3B liability. Before filing 3B, tie your total outward tax in 3B to what you have reported in GSTR-1/IFF for the same period. If you reported a sale in GSTR-1, make sure the tax is in this month’s 3B.
- Claim ITC from GSTR-2B, then reconcile to your books. Take your GSTR-2B as the starting point. Where your books show more, identify each invoice and the reason (usually a late-filing supplier) before you claim it, and keep the trail.
- Chase non-compliant suppliers. A supplier who does not file his GSTR-1 costs you credit every month. Follow up, and where necessary hold back payment until the invoice appears in your 2B.
- Reverse blocked and non-payment credits on time. Section 17(5) blocked credits and the 180-day non-payment reversal are the two most common “real” excesses — deal with them proactively rather than after a notice.
If a notice does land, do not let the seven-day clock run out — even a holding reply in Part B protects you from the GSTR-1 block. If the underlying question is a GSTR-3A non-filer notice or a related default, our guide to replying to a GSTR-3A GST notice walks through that response, and you can raise a specific reconciliation query with us through Ask a CA — GST.
Key takeaways
- The GST portal auto-compares your returns and issues DRC-01B when GSTR-1 liability exceeds GSTR-3B (Rule 88C), and DRC-01C when GSTR-3B ITC exceeds GSTR-2B (Rule 88D, live since 4 August 2023).
- You get seven days to reply in Part B — either pay the difference via DRC-03 with interest, or explain it with supporting documents.
- Ignoring the intimation blocks your next GSTR-1/IFF under Rule 59(6), and the amount can be recovered under Sections 73/74/79 — sometimes without a separate show-cause notice.
- Most ITC mismatches are innocent timing differences (suppliers filing late) that should be explained, not paid; the exceptions are Section 17(5) blocked credits and 180-day non-payment reversals, which should be reversed.
- A ten-minute monthly reconciliation — tie GSTR-1 to 3B, claim ITC off GSTR-2B, chase non-filing suppliers — prevents almost every one of these notices.
Frequently Asked Questions
Is a DRC-01B or DRC-01C a scrutiny notice from an officer?
No. Both are system-generated intimations produced automatically when your returns cross the configured mismatch threshold. They are an early-warning mechanism, not an assessment, and most are resolved by a simple explanation. But they must be answered within seven days or they escalate.
My supplier filed his GSTR-1 late, so my credit is missing from GSTR-2B. Do I have to reverse it?
Not permanently. If the credit is otherwise eligible and only delayed because the supplier filed late, you explain this in Part B and point to the subsequent month’s GSTR-2B where the credit appears. You keep the invoice and the later 2B as evidence. You should not pay tax on a valid credit merely because of a timing lag.
What is the difference between GSTR-2A and GSTR-2B for this purpose?
GSTR-2B is a static, auto-drafted statement generated on a fixed date each month and is the basis for the Rule 88D comparison and for claiming ITC. GSTR-2A is dynamic and keeps updating as suppliers file. For reconciliation against a DRC-01C, always work from GSTR-2B, since that is what the system uses.
What happens if I neither pay nor reply within seven days?
Your next GSTR-1 / IFF is blocked under Rule 59(6), which stalls your compliance and your customers’ credit. The flagged amount can then be taken up for demand and recovery. Filing even a brief explanation in Part B keeps you out of the block, so never let the window lapse.
Can I claim ITC that is not in my GSTR-2B at all?
Only in limited, defensible situations — such as a genuinely eligible invoice temporarily missing because of a supplier’s late filing. As a rule, ITC is now restricted to what appears in GSTR-2B, so claiming credit that never shows up there invites a DRC-01C and, if unexplained, a demand under Section 73 or 74. Reconcile before you claim, not after.