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Tax Laws and Practice · Input Tax Credit and Computation of GST Liability

Section 38 CGST: Communication of Inward Supplies and ITC Matching

Updated 11 October 2026 · Fact-checked

Under Section 38 of the CGST Act, details of outward supplies furnished by suppliers, plus an auto-generated ITC statement, are made available electronically to recipients. The statement shows credit that may be available and credit that cannot be availed. To solve questions, check the supplier's filing, Section 38(2)(b) restrictions and Section 16 conditions.

Understand Communication of Inward Supplies and Matching of Credit

Your input tax credit depends on what your supplier reports. A supplier files details of outward supplies under Section 37(1). The system then shows these details to you, the recipient. This is the "communication" in Section 38.

Section 38(1) says two things are made available electronically to the recipient: the details of outward supplies furnished under Section 37(1) (and other prescribed supplies), and an auto-generated statement containing details of input tax credit. Form, manner, time and conditions are as prescribed in the Rules.

The auto-generated statement has two parts under Section 38(2). Clause (a) lists inward supplies on which credit may be available. Clause (b) lists supplies on which credit cannot be availed, wholly or partly, because of the supplier's position. This is how credit is matched and restricted.

Section 38(2)(b) lists the supplier-side situations: details furnished by a person within a prescribed period of taking registration; a person who has defaulted in tax payment for a prescribed period; a person whose output tax payable exceeds output tax paid by a prescribed limit; a person who has availed excess credit over what is allowed, by a prescribed limit; a person who has defaulted in discharging tax liability under Section 49(12); and any other prescribed class of persons.

In practice, GSTR-2A is a dynamic view of supplier-reported details that changes as suppliers file. GSTR-2B is a static statement generated for a month, showing eligible and ineligible credit. These form names and their features come from the Rules and portal practice, not Section 38 itself. The link to Section 16 matters: Section 16(2)(aa) requires the supplier to have furnished the invoice details and communicated them to you, and Section 16(2)(ba) requires that the credit communicated under Section 38 has not been restricted.

Key rules to remember

Communication under Section 38(1)
Supplier's Section 37(1) details + auto-generated ITC statement → made available electronically to recipient
Form, manner, time and conditions are as prescribed.
Content of statement, Section 38(2)
Statement = (a) inward supplies where credit may be available + (b) supplies where credit cannot be availed, wholly or partly
Clause (b) restrictions arise from the supplier's conduct as listed in sub-clauses (i) to (vi).
Condition linked to matching, Section 16(2)(aa)
Credit needs: invoice/debit note details furnished by supplier and communicated to recipient
This is the supplier-reporting condition.
Condition linked to restriction, Section 16(2)(ba)
Credit needs: ITC communicated under Section 38 has not been restricted
A restricted credit cannot be taken.
Time limit for credit, Section 16(4)
Credit not allowed after the earlier of: 30 November following the end of the financial year of the invoice, or filing of the annual return
Sub-section (5) gave special relief for 2017-18 to 2020-21.

How to solve Communication of Inward Supplies and Matching of Credit questions

Use this method for any question on communication of inward supplies and ITC matching.

  1. 1Identify the recipient, the supplier and the invoice, with its date and financial year.
  2. 2Check whether the supplier furnished the invoice in outward supply details under Section 37(1), so that it was communicated to the recipient.
  3. 3Check whether the statement shows the supply as credit available under Section 38(2)(a) or as not available under Section 38(2)(b).
  4. 4If restricted, name the supplier-side ground: new registration period, tax default, output tax mismatch, excess credit, Section 49(12) default, or other prescribed class.
  5. 5Test the other Section 16(2) conditions: tax invoice or debit note, receipt of goods or services, tax actually paid, and return furnished under Section 39.
  6. 6Check the time limit in Section 16(4) and the 180-day payment proviso if payment to the supplier is mentioned.
  7. 7Conclude clearly: credit allowed, allowed in part, or denied, citing the sections.

Quickest way: Three-gate check for ITC matching

When to use it: Use when time is short and the question asks whether credit can be taken on a given invoice.

  1. Gate 1: Is the invoice reported by the supplier and shown to you? If not, Section 16(2)(aa) fails.
  2. Gate 2: Is the credit shown as restricted under Section 38(2)(b)? If yes, Section 16(2)(ba) fails.
  3. Gate 3: Are the remaining Section 16 conditions and the Section 16(4) time limit met? If yes, allow credit.
  4. Write the conclusion with section numbers in one line.

Common mistakes in Communication of Inward Supplies and Matching of Credit

  • Saying Section 38 itself names GSTR-2A and GSTR-2B.

    Students mix portal practice with the text of the Act.

    Fix: Say the Act speaks of an auto-generated statement in prescribed form; GSTR-2A and GSTR-2B are the forms used in practice.

  • Treating all invoices in the statement as eligible credit.

    Students ignore the two-part structure of Section 38(2).

    Fix: Separate clause (a) available credit from clause (b) credit that cannot be availed, wholly or partly.

  • Ignoring the supplier's default as a ground for restriction.

    Students think only the recipient's conduct matters.

    Fix: Remember Section 38(2)(b) restricts credit based on the supplier's position, such as tax default or output tax mismatch.

  • Forgetting Section 16(2)(aa) and (ba) when answering on eligibility.

    Students learn only the older conditions of invoice, receipt, payment and return.

    Fix: Add the matching and non-restriction conditions to your list of Section 16(2) conditions.

  • Quoting fixed periods or limits for restrictions.

    Students try to recall Rule figures.

    Fix: State that the periods and limits are as prescribed, unless the question gives them.

Worked examples

Example 1

Explain what Section 38 of the CGST Act requires in respect of the auto-generated statement of input tax credit, and when credit cannot be availed by the recipient.

Show the solution
  1. Provision: Section 38(1) requires details of outward supplies furnished under Section 37(1), and an auto-generated statement of ITC, to be made available electronically to recipients, in the prescribed form, manner and time.
  2. Content: Under Section 38(2), the statement has (a) inward supplies where credit may be available and (b) supplies where credit cannot be availed, wholly or partly.
  3. Restriction grounds: credit cannot be availed where details were furnished by a person within a prescribed period of registration, a person defaulting in tax payment for a prescribed period, a person whose output tax payable exceeds output tax paid by a prescribed limit, a person who availed excess credit beyond a prescribed limit, a person defaulting under Section 49(12), or another prescribed class.
  4. Link: Section 16(2)(ba) makes non-restriction a condition for taking credit.

Answer: Section 38 makes supplier-reported details and an ITC statement available to the recipient. Credit shown under Section 38(2)(b) cannot be availed, wholly or partly, and Section 16(2)(ba) denies credit that has been restricted.

Example 2

Sharma Traders, Jaipur, bought goods from Verma Metals for ₹1,00,000 plus 18% GST. It holds the tax invoice and received the goods. Verma Metals has not reported the invoice in its outward supply details. Can Sharma Traders take credit of ₹18,000?

Show the solution
  1. Tax: 18% of ₹1,00,000 = ₹18,000.
  2. Provision: Section 16(2)(aa) requires that the supplier has furnished the invoice details in the statement of outward supplies and that they have been communicated to the recipient.
  3. Facts: Sharma Traders has the invoice and the goods, satisfying Section 16(2)(a) and (b). But Verma Metals has not reported the invoice, so the details are not communicated under Section 38.
  4. Analysis: Condition (aa) is not met, so credit cannot be taken now.

Answer: Sharma Traders cannot take the ₹18,000 credit until Verma Metals reports the invoice and it is communicated. It may take credit then, subject to the other Section 16 conditions and the Section 16(4) time limit.

Exam tips

  • Write the provision first: Section 38(1), then the two parts in Section 38(2).
  • Always link Section 38 to Section 16(2)(aa) and (ba) in eligibility answers.
  • Say that forms, periods and limits are as prescribed; do not invent figures.
  • Explain GSTR-2A as dynamic and GSTR-2B as a static monthly statement, but label these as practice points.
  • End each answer with a one-line conclusion on whether credit is allowed.

Practice questions from Input Tax Credit and Computation of GST Liability

Communication of Inward Supplies and Matching of Credit in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Communication of Inward Supplies and Matching of Credit: frequently asked questions

What does Section 38 of the CGST Act deal with?

It deals with communication of details of inward supplies and input tax credit to recipients. Supplier-furnished outward supply details and an auto-generated ITC statement are made available electronically. The form, manner and time are prescribed.

What is the difference between GSTR-2A and GSTR-2B?

GSTR-2A is a dynamic view of supplier-reported details and changes when suppliers file or amend. GSTR-2B is a static statement for a month that shows credit as available or not available. These forms come from the Rules and portal practice.

Can credit be restricted because of the supplier's default?

Yes. Section 38(2)(b) lists supplier-side grounds such as tax default, output tax exceeding output tax paid by a prescribed limit, and Section 49(12) default. Such credit cannot be availed, wholly or partly.

How do I reconcile ITC with GSTR-2B?

Compare your purchase records with the statement, invoice by invoice. Claim credit shown as available if other Section 16 conditions are met. Follow up with suppliers on missing invoices and do not claim restricted credit.