All About ‘Electronic Credit Reversal & Reclaimed Statement’ in GST: Do’s & Don’ts

Over the period of time, the GST council is focusing on correct Input Tax credit by the taxpayers. Further, they want to control the credit availment of fake transaction in the overall chain.  To enhance the compliance with regards to Input Tax Credit (ITC) utilization and the accurate reporting of ITC availment, ITC reversal, ITC re-claimed and Ineligible ITC information in GST returns by taxpayers, the Central Board of Indirect Taxes and Customs (CBIC) continuously implementing certain measures. These initiatives are designed to streamline and strengthen the ITC process and correct reporting of information.

These measures include:

GSTR-2A Reconciliation: One of the first steps introduced for reconciling the ITC availed in GSTR-3B with GSTR-2A, which is automatically generated based on supplier invoices, with the records maintained by the registered taxpayer. This helps identify any discrepancies in the claimed ITC.

Introduction of GSTR-2B (Static Return): The introduction of GSTR-2B, a static return, offers registered individuals a clearer view of their eligible ITC by consolidating information from various sources, including GSTR-2A. This simplifies the process of ITC verification and enables auto populate details in GSTR-3B w.r.t Input Tax Credit (ITC).

Manner of Furnishing ITC Details in GSTR-3B: CBIC has provided guidelines on how to accurately report ITC details in GSTR-3B returns. This ensures that taxpayers report their ITC utilization in a standardized and consistent manner from Sep-22 onwards.

Introduction of Electronic Credit Reversal and Reclaimed Statement: The latest initiative in this series is introduction of an Electronic Credit Reversal and Reclaimed Statement. This system is expected to reduce manual intervention and potential errors while filing of GSTR-3B returns w.r.t ITC.

All these measures collectively aim to improve transparency and accuracy in the reporting of ITC transactions. By implementing these steps, CBIC aims to facilitate better compliance among registered individuals while minimizing instances of incorrect ITC availment and reporting. These efforts contribute to a smoother and more efficient GST ecosystem. Let us understand the proposed reporting guidelines and evaluate whether it will bring efficient control to taxpayer or will only be used as tool to issue notices to the taxpayers.

Current process of reporting in GSTR-3B

It is important to note that currently taxpayers following procedure for reporting details of ITC in GSTR-3B as per Notification No. 14/2022 – Central Tax dated 05th July, 2022 (read with circular 170/02/2022-GST, Dated 6th July,2022) from 1^st Sep 2022 till date i.e.;

Table No. 4 Eligible ITC of GSTR-3B
(A) ITC Available (whether in full or part)
(1) Import of goods	Details of the ITC are auto populated and are editable by the registered person
(2) Import of services	Details to be filed by the registered person
(3) Inward supplies liable to reverse charge (other than 1 & 2 above)	These supplies shall be declared in Table 3.1(d) of FORM GSTR-3B for payment of tax. Credit may be availed on payment of tax. This table is partly auto populated and editable by the taxpayer by actual RCM liability
(4) Inward supplies from ISD	Details of the ITC are auto populated and are editable by the registered person
(5) All other ITC	Details of the ITC are auto populated and are editable by the registered person. (This figure added with the ITC of earlier period which booked now in books of accounts)
(B)  ITC Reversed
(1) As per rules 38,42 & 43 of CGST Rules and section 17(5)	The reversal of ITC of ineligible credit under section 17(5) or any other provisions of the CGST Act and CGST Rules which will be not re-claimed in future
(2) Others	Any other reversal of ITC other than table no. 4(B)(1) above which may be re-claimed in future
(C) Net ITC Available (A) – (B)	This amount will be credited into the Electronic Cash Ledger (ECL) of the registered person
(D) Other Details
(1) ITC reclaimed which was reversed under Table 4(B)(2) in earlier tax period	The details regarding ITC that is re-claimed which was reversed in earlier tax period. (This figure added with the ITC of earlier period (before Sep-22) which booked now in books of accounts)
(2) Ineligible ITC under section 16(4) & ITC restricted due to POS rules	The details regarding ITC that is not available to the registered person either on account of limitation of time period as delineated in sub-section (4) of section 16 of the CGST Act or where the recipient of an intra-state supply is located in a different state/UT than that of place of supply.

Details of the ITC are auto-populated from the entire set of data in GSTR-2B in Table 4 (ITC) of the return in Form GSTR-3B are editable by the registered taxpayer.

The procedure mentioned must be followed to correct reporting of information in the return and identify ineligible ITC as well as reversal of ITC to arrive at the net ITC available, which is to be credited to the Electronic Credit Ledger (ECL).

The reversal of ITC can be of below nature,

• The reversal of ITC of ineligible credit under section 17(5) or any other provisions of the CGST Act and CGST Rules is required to be made under Table 4(B)(1)- (ITC reversed – As per rules 38,42 & 43 of CGST Rules and section 17(5)) which cannot be reclaimed in future.
• Further, the reversals made under Table 4(B)(2) – (ITC reversed – Others) may be reclaimed in future in Table 4(A)(5) – (All other ITC) on fulfilment of necessary conditions and such reclaimed ITC needs to be reported in Table 4(D)(1) – ( Other Details – ITC reclaimed which was reversed under Table 4(B)(2) – (ITC reversed – Others) in earlier tax period .

 New Guidelines for reporting of ITC in GSTR-3B

 From Aug-2023 return onwards, CBIC introduced Electronic Credit Reversal and Re-claimed statement on GST portal.

The primary objective of making this statement available on portal is to facilitate taxpayers to report ITC reversal and reclaims with accuracy and correctness by minimizing clerical errors.

This statement serves as a valuable tool for taxpayers, enabling them to monitor the ITC amounts that have been reversed in Table 4B(2) – (ITC reversed – Others)  and subsequently reclaimed in Table 4A(5) – (All other ITC) and 4D(1) – ( Other Details – ITC reclaimed which was reversed under Table 4(B)(2) – (ITC reversed – Others) for each return period.

It offers a clear and organized overview of these transactions, making it easier for taxpayers to ensure accurate reporting and compliance with tax regulations.

CBIC’s aim by implementing this statement is, overall consistency and correctness of ITC reversal and re-claims related transactions will be improved. Also from the other side, taxpayers are also benefited with tracking for reversed amount of ITC and take appropriate efforts for reclaim the same within prescribed timeline.

Now, the taxpayers are being provided a facility to report their cumulative ITC reversed in earlier period out of GSTR-2B but available as credit in future period (ITC that has been reversed earlier and has not yet been reclaimed from Apr-22 to Jul-23 period) as opening balance for “Electronic Credit Reversal and Re-claimed Statement”, if any.

To report ITC reversal balance taxpayer needs to follow below path on GST portal;

Login – Report ITC Reversal Opening Balance.

or

Services – Ledger – Electronic Credit Reversal and Re-claimed Statement – Report ITC Reversal Opening Balance

Taxpayers having monthly filing frequency are required to report their opening balance considering the ITC reversal done till the return period of July 2023.

Quarterly taxpayers shall report their opening balance up to Q1 of the financial year 2023-24, considering the ITC reversal made till the April-June 2023 return period.

For reporting of the ITC reversal opening balance following points needs to be taken care;

• Taxpayer’s are permitted to use this facility to report their ITC reversal balance that has not been re- claimed till Jul-23 period.

• The taxpayer is advised to report solely those reclaimable ITC reversal balances that meet the legal criteria for re-claim and have not been previously claimed by the taxpayers.

• Taxpayers may report their opening balance until 30^th November 2023. After 30^th November 2023 the option to report the opening balance will be removed, and it will be assumed that the taxpayer has no ITC reversal balance to report.

• The taxpayers shall also be provided 3 (three) amendment opportunities to correct their opening balance in case of any mistakes or inaccuracies in reporting.

• Taxpayer may amend their opening balance until 31^st December 2023.Any reported balance after 31^st December 2023 will be considered final and can not be further amended.

• After 31^st December 2023, the updated value shall be frozen with no further attempts provided to the taxpayers to amend their ITC reversal balance and this ITC reversal will be sent to the Jurisdictional tax officer for review.

• The opening balance that has been reported or amended by the taxpayers shall be credited to the “Electronic Credit Reversal and Re-claimed Statement”. This statement will be used to validate the taxpayer’s ITC reclaimed amount in Table 4(5) & 4(D)(1) of form GSTR-3B.

• With the provision for taxpayers to report their accumulated ITC reversal balance, the portal will subsequently maintain a record of reversal and re-claimed amounts on a return period basis in statement. Hence, a validation mechanism is incorporated into the GSTR-3B form.
• This validation will trigger a warning message if a taxpayer attempts to re-claim excess ITC in table 4D(1) than the available ITC reversal balance in the statement along with ITC reversal made in current return period in Table 4B(2).
• This warning message would facilitate accurate reporting, but the taxpayers will still have the option to proceed with filing. However, the taxpayers are advised not to reclaim ITC exceeding the closing balance of “Electronic Credit Reversal and Re-claimed Statement” and may report their pending reversed ITC, if any, as ITC reversal opening balance. For monthly taxpayers, the warning message will commence appearing from the GSTR-3B filing for the August 2023 return period. Similarly, for quarterly taxpayers this warning message would start from the filing period covering July to September 2023.

Given the recent initiatives taken by CBIC, it is of utmost importance for every taxpayer to ensure the accurate reporting of Input Tax Credit (ITC) details in their GSTR-3B returns. Additionally, since taxpayers now have a one-time opportunity to report their ITC reversal balance (i.e., ITC not yet claimed), it is crucial to exercise due diligence in preparing for future ITC claims. To achieve this, taxpayers should undertake the following tasks:

• Reconcile Inward Register with GSTR-2B (April 2022 to July 2023): Taxpayers should meticulously compare their inward register with the information provided in GSTR-2B during the specified period. This reconciliation helps identify any discrepancies and ensures accurate reporting.
• Identify ineligible ITC in GSTR-2B: It’s essential to pinpoint any ITC items appearing in GSTR-2B that are ineligible for claim. These ineligible amounts should not be considered as part of the opening balance in the “Electronic Credit Reversal and Reclaimed Statement.”
• Calculate correct amount for future reversals: Taxpayers must calculate the correct amount for any ITC reversals that might be re-claimed in the future. This pertains to ITC items present in GSTR-2B but not yet claimed by the taxpayer.
• Consider Reversals under CGST Rule 37: Ensure that any reversals mandated by CGST Rule 37, such as when the recipient fails to pay the supplier’s consideration within 180 days of the invoice date, are factored into the opening balance of the “Electronic Credit Reversal and Reclaimed Statement.”
• Track “Electronic Credit Reversal and Reclaimed Statement” for GSTR-3B Filing: Stay vigilant about the “Electronic Credit Reversal and Reclaimed Statement” while filing GSTR-3B. Accurate reporting should align with the data contained in this statement.
• Establish a Real-Time ITC System: Implement a real-time system for ITC management, ensuring that the correct ITC is availed promptly. Additionally, actively follow up with vendors who may not be in compliance with GST regulations.
• Timely and Accurate Reporting on the GST Portal: Lastly, commit to reporting accurate ITC details on the GST portal within the prescribed timelines. Timely and correct reporting is a basis of GST compliance.

By diligently performing these tasks and maintaining strict adherence to the GST regulations, taxpayers can not only strengthen their compliance but also ensure the accuracy and completeness of their ITC records.  Taxpayer has to maintain all records well-organized for ITC reversals and reclaims, including supporting documents and invoices, as these may be required for audit or verification purposes.

Further, in any case if taxpayer unsure about any aspect of the statement or your ITC transactions, they should consider seeking professional advice or consulting with a GST expert to ensure compliance.

Once again, CBIC has emphasized the importance of reconciling ITC availment details with GSTR-2B to ensure a seamless matching process. It is priority to acknowledge that starting from return to be filed from August 2023, filing GSTR-3B accurately becomes a crucial task. We always say there are 2 laws which are governing GST in India, one which is passed the Parliament and one which is released by GSTN by way of guidelines. This change by the later.

We extend our best wishes and support to all taxpayers for reporting the cumulative ITC reversal amount as the opening balance for the “Electronic Credit Reversal and Reclaimed Statement” and also in a smooth and successful filing of GSTR-3B. By adhering to these guidelines and maintaining diligence in their GST compliance efforts, taxpayers can contribute to a more efficient and transparent tax system.