GST reconciliation for construction & real estate.

A mid-size contractor or developer running 50 to 200 vendors — subcontractors, material suppliers, plant hire, professional consultants — sits on one of the messiest ITC positions in GST. Some of that credit is blocked by law and should never be claimed. Some is eligible but stuck because a subcontractor filed late. And some is quietly bleeding interest because a running-account bill crossed 180 days unpaid. Reconciliation is the only way to tell the three apart.

1. Works-contract and immovable-property ITC is blocked — and stays blocked

The single biggest trap in construction GST is claiming credit the Act specifically denies. Section 17(5)(c) blocks input tax credit on works contract services supplied for the construction of an immovable property — other than plant and machinery — except where the works contract is itself an input for a further supply of works contract service. Section 17(5)(d) blocks ITC on goods or services received by a taxable person for the construction of immovable property on its own account, again other than plant and machinery, even when used in the course or furtherance of business.

In practice, a developer building on its own account cannot claim the GST on cement, steel, and the main contractor's bill against that project. A contractor supplying a works contract to a client can generally claim credit on subcontracted works contract services, because that is the "input for further supply" carve-out — but the moment the output is exempt (for example, a residential unit sold after completion) the credit attribution changes and common-credit rules bite.

Because the eligible-versus-blocked line runs through nearly every invoice, a reconciliation that only matches numbers is not enough. You need each line tagged to its GST treatment. Recoup flags an invoice as Ineligible · 17(5) at the point of matching, so blocked credit never enters your claim and never triggers a reversal notice later.

2. Subcontractor non-filing — the Rule 37A reversal

Construction runs on subcontractors, and a large share of them file late or not at all. When a supplier has not filed its GSTR-3B for the period in which it declared an invoice, the recipient's ITC is at risk. Rule 37A of the CGST Rules requires that where the supplier has not furnished the return in FORM GSTR-3B by 30 September following the end of the financial year in which the credit was availed, the recipient must reverse that ITC by 30 November of that year — and may re-avail it once the supplier files.

This is distinct from a simple 2B mismatch. An invoice can appear in your GSTR-2B (the supplier filed GSTR-1) yet still attract a Rule 37A reversal (the supplier never filed GSTR-3B and paid the tax). Spotting it means cross-checking the supplier's filing status, not just the invoice presence. Recoup tracks the GSTR-1 versus GSTR-3B gap per vendor and surfaces the exposure before the 30 September cut-off — while you can still withhold payment or chase the subcontractor.

3. Retention money and running-account bills — the 180-day clock still runs

Construction contracts almost always hold back retention (typically 5–10%) and settle against running-account (RA) bills. Here is the point most teams miss: the second proviso to Section 16(2), read with Rule 37, requires the recipient to pay the supplier the value of supply plus the tax within 180 days of the invoice date. If the full invoice value is not paid within 180 days, the proportionate ITC must be reversed and re-availed only on later payment — with interest.

Retention does not pause this clock. The 180-day period runs on the full invoice value, including the retained portion, unless and until that amount is actually paid to the supplier. A ₹1 crore RA bill with ₹10 lakh retained can force reversal of the ITC on the unpaid ₹10 lakh once 180 days pass, even though the retention is contractually correct. Multiply that across dozens of open RA bills and the interest cost is real.

4. GST-TDS on government and PSU work

If you execute works contracts for government departments, local authorities, or notified public-sector undertakings, Section 51 requires the deductor to deduct GST-TDS at 2% (1% CGST + 1% SGST, or 2% IGST) on the payment where the total value of the taxable supply under a contract exceeds ₹2.5 lakh. The deductor files GSTR-7, and the deducted amount flows to your electronic cash ledger once you accept it in the "TDS and TCS Credit Received" statement.

This is a second reconciliation stream running alongside your ITC. The TDS credit in your cash ledger has to be matched to the projects and RA bills it relates to, and to what the department actually reports. Miss it and you have paid tax you never recovered. Recoup ties the cash-ledger TDS entries back to the underlying contract so nothing sits unclaimed.

What Recoup does for a construction finance team

• Tri-source match — bank, Zoho Books / Tally and the GST portal (GSTR-2B / IMS) reconciled invoice by invoice, so an RA bill, its payment and its 2B line are seen as one.
• Names the vendor — every blocked claim is tied to the exact subcontractor and invoice, ranked by rupee value, so you chase the ₹1.8 lakh blocker before the ₹2,000 one.
• 180-day watch — every unpaid invoice, including retained amounts, tracked against its Rule 37 deadline so reversals are pre-empted, not discovered in audit.
• Blocked-credit tagging — Section 17(5)(c)/(d) lines flagged before they enter a claim.
• TDS reconciliation — GST-TDS in the cash ledger matched back to contracts.