Understanding GSTN’s Electronic Credit Reversal & Reclaimed Statement

The Goods and Services Tax Network (GSTN) has introduced a new ledger known as the “Electronic Credit Reversal and Reclaimed Statement” in the GST portal. This ledger aims to report the amount of Input Tax Credit (ITC) that has been reversed in the GSTR-3B under Table 4B(2).

Before delving into the advisory issued by the GSTN dated 31^st August, 2023 regarding this new ledger, let’s explore the relevant provisions in the GST Act and the purpose behind its introduction.

Related Provisions of GST Law and circulars issued by the CBIC

We know that for taking input tax credit of the tax paid on goods/services purchased, a registered person has to satisfy all the four conditions specified in the section 16(2) of the CGST Act, 2017.

Further sub-rule 4 of the Rule 37 of CGST Rules, 2017 specifies that no input tax credit in respect of invoices or debit notes shall be availed by a registered person unless two conditions are satisfied:

1. Details of such invoices/debit notes has been furnished by the supplier in the Form GSTR-1 or using IFF.

2. Input tax credit in respect of such invoices/ debit notes is reflecting in the GSTR-2B of the recipient of such goods/services.

GSTN has introduced a new facility from the November, 2020 to auto-populate system computed details in the Form GSTR-3B from the GSTR-1 filed and the eligible ITC balance reflecting in the GSTR-2B.

Thereafter, a circular has been issued by the CBIC via circular no. 170/02/2022 dated 06^th July, 2022, wherein it was specified in the point no 4 that a registered person has to make various reversals of ITC on its own ascertainment in the Table 4B(1) and 4B(2) of the GSTR 3B from the amount of eligible input tax credit which are getting auto populate in the GSTR 3B from the GSTR 2B of that month.

Reversals made in the Table 4B(1) are absolute in nature and will be permanent and the credit of that ITC will not be allowed in the future. Reversal may be made due to the following reasons:

1. Under Rule 38 (used for Non-Business purpose by Banking or Financial institution))

2. Under Rule 42 (Input/ Input Services used for taxable and exempt supplies)

3. Under Rule 43 (Capital goods used for Taxable and Exempt supplies)

4. Ineligible ITC as per section 17(5)

5. Due to any other reasons as determined by the registered person.

Reversal of input tax credit made in the Table 4B(2) will be temporary and the credit of that ITC will be allowed in the future on satisfaction of the conditions. Reversal may be made due to the following reasons:

1. Under Rule 37 for not making the payment to the vendor within 180 days from the date of Invoice

2. ITC eligibility criteria as specified in section 16(2) not met i.e. invoice not received/ Goods or services not received, etc.

Reversals made in Table 4B(2) of the GSTR 3B can be reclaimed on satisfaction of conditions in Table 4A(5) “All Other ITC” of GSTR 3B and such reclaimed amount is also required to be reported in the Table 4D(1) “ITC reclaimed which was reversed in Table 4(B)(2) in earlier tax period”.

What was the purpose of introducing the new ledger?

To keep a track record on the amount of reversals made by the registered person which was reclaimable in the upcoming month and facilitate the taxpayers to ensure that the amount of ITC reclaimed is not more than the amount of ITC which has been reversed in the earlier month in the Table 4B(2) of GSTR 3B.

Now Let’s discuss about the advisory issued by the GSTIN for introducing a new ledger namely “Electronic credit and Re-claimed statement”.

How the Electronic Credit and Re-claimed Statement will work?

Taxpayers have to report the cumulative balance of ITC reversed in the earlier months till GSTR 3B of July, 2023 which was reclaimable, as an opening balance in the GST portal under the tab Services -Ledger-Electronic Credit Reversal and Re-claimed Statement-Report ITC Reversal Opening Balance.

Taxpayers have to ensure that only that part of cumulative balance of ITC reversed is required to be reported which has not yet been reclaimed till the GSTR 3B of July, 2023 for monthly return filers and till April-June, 2023 for Quarterly return filers.

For the subsequent months from August 2023, the portal will itself maintain the record of the ITC reversed and reclaimed amount with the help of GSTR 3B filed for each months/Quarters. Method that will be used in the GST portal for auto-calculating the closing balance of ITC reversed eligible to reclaim will be:

If a registered person has started reversing the ITC after issuance of the above referred circular No. 170/02/2022 dated 06^th July, 2022 which was effective from the GSTR 3B of August 2022 onwards as per the advisory issued by GSTN dated 02.09.2022, then whether he is required to report the amount of ITC which was reflecting in GSTR 2B prior to August, 2022 but not claimed in GSTR 3B?

If a registered person has started reversing the “ITC which was reclaimable” from August, 2022 onwards, then it is clear that prior to the August, 2022 such registered person is claiming only that portion of ITC in GSTR 3B which was reflecting in GSTR 2B and satisfies the conditions of section 16. Since any reversal which was reclaimable has not been made prior to the GSTR 3B of August 2022, so it will not come under the opening balance of ITC reversed.

Further the name “Electronic credit reversal and reclaimed statement” itself states that it covers only that ITC which has been reversed in earlier months and is eligible for reclaim.

What is the time limit to update the balance in the Electronic credit reversal and reclaimed statement?

Taxpayers have the opportunity to declare their opening balance for ITC reversal till 30th November 2023.

Whether any amendment opportunities will be provided to correct the opening balance updated in the GST portal in case of any mistakes or inaccuracies found in reporting?

Taxpayers can amend the opening balance updated in the GST portal till 31^st December, 2023 and shall be provided with 3 amendment opportunities.

Whether the taxpayers will be able to file the return, if the amount of reclaimed ITC in Table 4D(1) of GSTR 3B exceeds the balance reflecting in the Electronic credit reversal and reclaimed statement?

If the amount of reclaimed ITC exceeds the balance reflecting in the statement then the system will trigger a warning message to facilitate the accurate reporting but the taxpayers can still proceed with the filing. However, there may be possibility that department may issue a notice in Form DRC-01C as per the Notification No. 38/2023 dated 04^th August, 2023 to explain the difference between the eligible input tax credit reflecting in auto-generated statement i.e. GSTR 2B and that availed in the return.

Conclusion:

The Electronic Credit Reversal and Reclaimed Statement serves to facilitate the accurate tracking of reversed ITC that can be reclaimed in subsequent months. It ensures that taxpayers do not reclaim more ITC than they have reversed. With this new system in place, taxpayers can maintain compliance with the GST rules and streamline their ITC reporting. The new ledger simplifies the process of reporting and reconciling ITC reversals and reclaims, promoting transparency and accuracy in GST filings.

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Disclaimer: The content of this document is for general information purpose only. Author shall not accept any liability for any decision taken based on the article.