A DRC-01C is not a show cause notice and not a demand. It is a machine-generated intimation that says the input credit you claimed in GSTR-3B is higher than what your GSTR-2B allowed. You get seven days to answer in Part B. Miss it, and the portal simply stops your next GSTR-1, which stops your customers’ credit, which starts a very different conversation.
What a DRC-01C actually is
Rule 88D of the CGST Rules was inserted by Notification 38/2023-Central Tax dated 4 August 2023. It does something the GST law had not done before: it lets the system itself raise a query, with no officer involved at any stage.
The mechanics are simple. If the input tax credit you availed in Table 4 of GSTR-3B exceeds the credit made available to you in GSTR-2B, beyond a threshold, the portal issues an intimation in Part A of Form GST DRC-01C. It arrives on the portal and by e-mail. Nobody has examined your books. Nobody has formed a view. A query has been generated because two numbers did not agree.
- It is not a show cause notice. No tax has been proposed under section 73 or 74, and no penalty is on the table yet.
- It is not an assessment. Nobody has decided your credit is wrong. The system only knows the two figures differ.
- It is a gate. Until you pass through it, your next GSTR-1 does not go anywhere.
That last point is the one businesses underestimate. A DRC-01C carries no immediate money demand, so it gets filed under “later”. Later is the problem.
What sets it off
Two things have to line up for Part A to generate.
The gap itself
The comparison is ITC availed in GSTR-3B against ITC available in GSTR-2B, for a single tax period. Not against 2A, not against your purchase register, not against the year as a whole. The GST Council, at its 50th meeting, recommended a threshold of a difference exceeding 20% and more than Rs 25 lakh before an intimation is generated. The rule itself prints no numbers, it leaves them to whatever the Council recommends, and the live system parameters are not published. Treat that figure as indicative, not as a safe harbour: practitioner commentary reports intimations on gaps well below it, with some putting the working trigger nearer Rs 1 lakh or 20%, whichever is lower. Do not assume a smaller gap is invisible.
How the gap got there
Since the Invoice Management System went live, your GSTR-2B is no longer a passive statement, it is the output of decisions you made. Invoices your suppliers upload sit in IMS waiting for you to accept, reject, or mark pending. If you do nothing before 2B is generated on the 14th, the system treats them as accepted.
This cuts both ways. Inaction can pull in credit you did not want, and a stray rejection can strip out credit you did want. Either way, 2B is now a number you are partly responsible for, and Rule 88D measures you against it.
Worth knowing about the direction of travel: the liability side of GSTR-3B has been hard-locked since the July 2025 tax period, with GSTR-1A as the only correction route. On the credit side, Table 4 has been auto-populated from your 2B and your IMS actions since around October 2025, but you can still override the figure before you file. Removing that override is the pending step, widely expected around the July 2026 period. As at the date of this piece it has not been confirmed live by a dated GSTN advisory, and commentary is split on whether it has begun rolling out. Check the portal advisory before you change how you file. The safe assumption is that the manual override is on borrowed time.
Seven days, and what happens on day eight
Seven days from the intimation. That is the whole window, and it is the shortest clock in routine GST compliance, shorter than the thirty days a DRC-01 show cause notice usually gives you.
Inside those seven days you must do one of two things in Part B:
- Pay the difference through Form DRC-03, with interest under section 50, and say so in Part B; or
- Explain the difference, with reasons the officer can check against the record.
You can also do both, paying the part you cannot defend and explaining the part you can. That is very often the right answer, and the form allows it.
If day eight arrives with no Part B filed and nothing paid, two things follow:
- Rule 59(6) blocks your next GSTR-1 or IFF. This is automatic. It is also the part that hurts commercially, because your outward supplies do not reach your customers’ 2B, and their credit stalls with yours.
- The amount becomes recoverable under section 73 or 74. A system query you ignored turns into a real demand, with a real officer, and now you are drafting a reply on the back foot.
The seven days are not a grace period. They are the whole proceeding. Nothing about a DRC-01C improves by waiting.
The DRC-01C files that go badly are almost never the ones with a real credit problem. They are the ones where the intimation went to an e-mail nobody reads, and the first anyone noticed was when GSTR-1 refused to file three weeks later. By then you are explaining a gap from an old period, under pressure, with your buyers calling about their credit. Set the portal e-mail to somewhere a human looks daily. That single habit is worth more than any drafting I can do for you afterwards.
– Hardik Garg, Founder & Senior AdvisorHolding a DRC-01C with the clock running?
Send it across with your 2B and 3B for the period. We will tell you in writing whether it is explainable or payable, usually within a business day.
When your 3B is legitimately higher
A gap is not an accusation. There are ordinary, defensible reasons your 3B credit exceeds 2B for a period, and most DRC-01C matters close on one of them:
- Credit carried from an earlier period. An invoice appeared in an earlier 2B, you held it back pending goods receipt or payment, and availed it later. Perfectly correct under section 16(2), and it shows as an excess in the month you took it.
- Import IGST and bills of entry. Credit that flows through ICEGATE does not always land in 2B in the period you take it.
- Reverse charge credit. Tax you paid under RCM and the credit you took on it will not sit in 2B at all in the ordinary way.
- ISD distributions that reached you on a different timeline from the underlying invoice.
- Re-availment of credit reversed earlier, under Rule 37 for non-payment to a supplier within 180 days, or Rule 37A where the supplier had not paid tax. When the condition is later satisfied and you take the credit back, it is a re-availment, not a fresh claim, and it will not have a matching 2B entry in that month.
- Transition or amendment entries, and genuine portal timing differences around the 14th.
Each of these is provable. That is the point of the Part B reply: not to argue, but to make the difference verifiable without the officer having to take your word for it.
Drafting the Part B reply
Part B is a free-text field with an attachment. Most replies waste it. A reply that closes the file does four things, in this order:
1. Reconcile the exact figure
Start from the 2B credit, add each item that explains the excess, and arrive at the 3B figure. The officer should be able to read one schedule and see the gap disappear. If your reconciliation does not land on the exact rupee, you are not finished.
2. Give each line a reason and a reference
“Carried from May 2B, invoice no. 4417, availed on receipt of goods in June” beats “timing difference” every time. One line, one reason, one document reference.
3. Attach the proof, indexed
Bills of entry for import credit, RCM self-invoices and the challan, the ISD invoice, the payment evidence for a Rule 37 re-availment. Index the annexures and refer to them by number from the schedule.
4. Deal honestly with the part you cannot defend
If a slice of the gap is a genuine excess, pay that slice with interest through DRC-03 and say so in the same reply. A reply that concedes the indefensible and proves the rest reads as credible. One that stretches to defend everything invites the officer to test all of it.
Keep the reconciliation you filed. If the same supplier or the same pattern generates a second intimation next quarter, you want the earlier working paper on file, not rebuilt from memory.
When paying beats arguing
This is the question worth thinking about clearly, because the instinct to defend everything costs money.
Pay when the excess is genuinely yours: an invoice claimed twice, credit taken on a supplier who never filed, a keying error in Table 4. Paying through DRC-03 with interest under section 50, inside the seven days, closes it. Interest runs while you deliberate, so a fortnight of thinking is not free.
Explain when the credit is properly yours and the timing is the only issue, which covers most of the reasons in the previous section. Do not pay to make an intimation go away when your position is sound. Paying is not neutral, and a pattern of paying every query invites more of them.
Do both when the gap has two halves. It is the most common right answer and the one people avoid because it feels like a partial admission. It is not, it is precision.
What you should not do is treat a DRC-01C as a negotiation. There is no officer to negotiate with at this stage, only a form and a deadline.
Same gap appearing every quarter?
A repeating DRC-01C is a reconciliation problem, not a notice problem. We fix the monthly 2B process so the intimation stops arriving.
DRC-01B, DRC-01C and DRC-01 are three different animals
These get used interchangeably in conversation and they should not be. They come from different rules, measure different things, and carry very different consequences.
DRC-01B, the liability gap
Rule 88C, brought in by Notification 26/2022-Central Tax following the 48th GST Council meeting. It compares the tax you declared in GSTR-1 against the tax you paid in GSTR-3B. It is about output liability, not credit. Same structure as its sibling: Part A intimation, Part B reply within seven days, and Rule 59(6) blocks the next GSTR-1 if you do neither.
DRC-01C, the credit gap
Rule 88D, 2023. Compares ITC availed in GSTR-3B against ITC available in GSTR-2B. Input side. Everything above.
DRC-01, the show cause notice
Not a system intimation at all. This is a formal show cause notice issued by an officer under section 73 or 74, proposing tax, interest and penalty, normally with around thirty days to reply in DRC-06, a personal hearing, and an order in DRC-07 at the end. It is a proper adjudication with a real case to answer. We have written about that one separately and at length.
The short version: B is liability, C is credit, and plain DRC-01 is a case. The first two are conversations with a machine on a seven-day clock. The third is a conversation with the department, and the stakes are an order.
The bottom line
A DRC-01C is the cheapest notice in GST to deal with and one of the most expensive to ignore. Seven days, one reconciliation, one honest split between what you can prove and what you cannot. Do that and it closes without an officer ever opening a file. Let it lapse and you lose your GSTR-1, your buyers lose their credit, and the same number comes back as a demand under section 73 with interest and penalty attached. Route the portal e-mail somewhere a person reads it, reconcile 2B against 3B every month rather than every year, and this notice becomes a formality instead of an event.