DRC-01C under Rule 88D: GSTR-3B vs GSTR-2B Mismatch Notice Response

When the GST Network’s automated comparator finds that your GSTR-3B Table 4A input tax credit exceeds the auto-populated GSTR-2B for the same tax period beyond a threshold, the system fires a Form DRC-01C Part A intimation under Rule 88D of the CGST Rules. The clock starts immediately — seven days to file Part B, or your next GSTR-1 gets locked under Rule 59(6).

This article walks through the Rule 88D trigger logic, the two Part B reply options, the cascading consequences of non-reply, and a worked ₹62 lakh mismatch example for a Tier-1 manufacturer.

Quick reference

What triggers a DRC-01C Part A intimation?

Rule 88D operationalises a long-standing CBIC concern: taxpayers were claiming ITC in GSTR-3B that wasn’t reflected in their suppliers’ GSTR-1 filings. Section 16(2)(aa), inserted via the Finance Act 2021 and notified from 1 January 2022, requires that ITC can only be availed if the invoice has been furnished by the supplier in their outward supply statement and communicated in the recipient’s GSTR-2B.

Rule 88D codifies the enforcement loop. After every GSTR-3B filing, the GSTN runs an automated comparison between the ITC claimed in Table 4A (all-other ITC, IGST on imports, ISD credits, inward supplies from unregistered persons reverse-charge, and adjustments) and the ITC made available in GSTR-2B for the same return period.

If the excess is more than ₹25 lakh in absolute rupees, or more than 20% of the available ITC in percentage terms — whichever threshold is breached first — a Part A intimation is automatically emailed to the taxpayer and posted to the portal dashboard. There is no officer discretion at this stage; it is a system-generated notice.

What does Part A actually contain?

Part A is short. It lists the period, the GSTR-3B ITC figure, the GSTR-2B ITC figure, the differential in rupees, the differential as a percentage, and a one-line instruction to either pay the differential with interest or explain the mismatch via Part B within seven days. It does not allege fraud or wrongful availment; it is a structured request for reconciliation.

The seven-day window is calculated from the date of intimation as recorded on the portal — not the date you noticed it in your email. Practitioners typically advise treating any portal-posted intimation as if the clock started on day one of posting.

The two reply options in Part B

Part B presents a binary choice at the top of the form, then expands based on which radio button is selected.

Option A — Pay the differential. The taxpayer pays the excess ITC amount via Form DRC-03, along with interest under Section 50 at 18% per annum for the period of wrongful availment. The DRC-03 generates an ARN, which is quoted in Part B as the proof of payment. This route is fastest when the mismatch is clearly attributable to ineligible credit — for example, Section 17(5) blocked credit on motor vehicles or club memberships that slipped through.

Option B — Explain the mismatch. The taxpayer provides a reasoned narrative with supporting reconciliation. The portal allows free-text reasons and attachment uploads. Common defensible explanations include supplier GSTR-1 filed in a subsequent month (timing), credit notes not yet issued by supplier, reversal already executed in a later GSTR-3B, IGST on import paid via bill of entry but not flowing through GSTR-2B in the same period, and genuine supplier non-filing being pursued via legal recovery.

In practice, most mid-to-large taxpayers file a hybrid: pay the portion clearly attributable to ineligible credit, and explain the timing-and-recoverable portion. Part B accommodates this — Option B can quote a partial DRC-03 ARN alongside the explanation narrative.

Worked example: ₹62 lakh mismatch at a Tier-1 manufacturer

Consider a Tier-1 auto component manufacturer in Chennai for the May 2026 tax period. GSTR-3B Table 4A ITC claimed is ₹14.8 crore. GSTR-2B available ITC is ₹14.18 crore. The differential is ₹62 lakh — well above the ₹25 lakh absolute threshold, and approximately 4.4% of available ITC, so the absolute threshold is what triggers the notice.

The finance team runs a bucket-wise reconciliation of the gap.

Bucket 1 — Supplier timing: ₹18 lakh. Three logistics vendors and one tooling supplier filed their GSTR-1 in early June for invoices dated late May. The invoices are valid, accepted, and will appear in the June GSTR-2B. The taxpayer’s purchase register matches; only the supplier’s filing calendar lags.

Bucket 2 — Section 17(5) wrongly claimed: ₹24 lakh. A capital goods purchase of works-contract services for office interior renovation was inadvertently claimed as eligible ITC. Section 17(5)(c) blocks credit on works contract services for construction of immovable property when the recipient is not in the same line of business. This is a clean payment-with-interest case.

Bucket 3 — Genuine supplier non-filing: ₹20 lakh. Two component suppliers — both in financial distress — have not filed GSTR-1 for the period. The taxpayer has invoices, e-way bills, payment proof through banking channels, and ongoing email correspondence demanding compliance. Recovery is being pursued; reversal will be made if the supplier does not file by the prescribed cure window.

The Part B reply structure looks like this. The taxpayer files a DRC-03 for ₹24 lakh principal plus Section 50 interest at 18% from the date of GSTR-3B filing to the date of DRC-03 payment. The DRC-03 ARN is quoted in Part B under Option A. Under Option B, the taxpayer explains the ₹18 lakh as a supplier-side timing issue with vendor names, GSTINs, and expected June reflection, and the ₹20 lakh as supplier non-filing being recovered with attached correspondence trail and a commitment to reverse if not regularised within the cure window prescribed by Rule 37A.

This hybrid Part B closes the DRC-01C cleanly, unlocks the June GSTR-1 filing, and documents the audit trail for any subsequent scrutiny.

Need a quick sense of how much ITC you might be leaving on the table or paying twice? Try the ITC Leakage Calculator — it surfaces the four most common bucket patterns in under five minutes.

What happens if you ignore the intimation?

Rule 59(6) is the enforcement teeth. From the eighth day after a Part A intimation, the GSTR-1 (or IFF for QRMP taxpayers) for the subsequent tax period cannot be filed on the portal. The system simply refuses submission.

For B2B-heavy businesses, this is severe. Your customers’ GSTR-2B for the following month will not show your invoices, which means they cannot claim ITC against your supplies. Within a week of GSTR-1 blockage, large customers start escalating — and the cascading reputational and commercial cost of a frozen GSTR-1 typically exceeds the underlying mismatch amount by an order of magnitude.

Unblocking is mechanical but not instant: file Part B (with payment or explanation), wait for the portal to register the closure, and only then can GSTR-1 be filed. Practitioners report 24-to-72 hour portal lag in some cases.

Section 50 interest mechanics

Section 50(3), as amended, charges interest at 18% per annum on wrongly availed and utilised ITC. Two words matter: availed and utilised.

If the excess ITC sat in your electronic credit ledger and was never used to discharge output tax — for example, your output liability was fully paid in cash — Section 50(3) interest applies only on the utilised portion. The unutilised portion can be reversed in a later GSTR-3B without interest, and Part B can document this.

In the worked example above, if the manufacturer’s May 2026 output liability was ₹22 crore and was fully discharged using ITC of ₹14.8 crore plus cash of ₹7.2 crore, then arguably ₹14.8 crore of ITC was utilised. The ₹24 lakh Section 17(5) portion is fully attributable to utilised credit, so 18% interest runs from filing date to DRC-03 date. Documenting the ledger movement in Part B is essential.

Building the reconciliation before the notice arrives

The most expensive mistake is treating DRC-01C as a reactive workflow. The taxpayers who file clean Part B replies are the ones who already maintain a rolling three-month reconciliation between purchase register, GSTR-2A, and GSTR-2B, with named ownership of each variance bucket. When Part A lands, they have the four-bucket split ready before the seven-day window starts.

Three operational habits matter. First, a Section 17(5) blocked-credit register reviewed monthly catches ineligible claims before they hit GSTR-3B. Second, a supplier non-filer tracker with escalation timelines makes Bucket 3 defensible. Third, a Rule 37A reversal calendar ensures that any ITC where the supplier ultimately doesn’t file is reversed within the cure window, avoiding both interest and a second DRC-01C cycle.

For a deeper dive on the structural reconciliation needed under Rule 36(4) and Rule 37A, see ITC leakage under Rule 36(4) and the GSTR-2B reconciliation playbook.

Closing the loop

DRC-01C under Rule 88D is best thought of as a structured invitation to reconcile. The form itself is short, the deadline is tight, but the underlying logic — that GSTR-3B ITC must align with GSTR-2B availability — is something a well-run finance function should already be tracking month-on-month.

The taxpayers who treat the seven-day window as a panic event are the ones without a rolling reconciliation. The ones who treat it as a documentation exercise have already done the work. Purpose-built GST reconciliation software closes the gap between the two by automating the four-bucket split at source, and a broader reconciliation software India stack ties GST reconciliation to bank, NACH, and TDS workflows so the same evidence base serves notices across tax regimes.