GST Network releases ledger to track reversed, reclaimed input tax credit —here's how it works

In order to simplify the compliance and enhance transparency in India's taxation system, the Goods and Services Tax Network (GSTN) has introduced an all-new ledger to track the reversal and reclamation of Input Tax Credit (ITC). Known as Electronic Credit and Re-claimed Statement (ECRS), it will provide taxpayers with the balance of all input tax credit that has been reversed and reclaimed on a particular date.

This move comes as a response to the government's recent amendment to the GSTR-3B return form, particularly Table 4, which now provides a detailed breakdown of ITC eligibility, reversals, and reclaims, effective from the August 2022 return period onwards.

The GST portal now has a ledger akin to electronic cash or credit ledgers, known as the Electronic Credit and Re-claimed Statement (ECRS). This statement empowers taxpayers with the ability to access their input tax credit balances, specifically the amounts that have been reversed and later reclaimed on specific dates.

Before diving deeper into the functionality of this ledger, it's essential to grasp the situations that might necessitate an ITC reversal and subsequent reclaim.

"These scenarios include cases outlined in CGST Rule 37, CGST Section 16(2)(b), CGST Section 16(2)(c), and situations involving auto-populated credit notes. In these instances, ITC must initially be reversed but can later be reclaimed when certain conditions are met. The introduction of the ECRS statement aims to simplify tracking this complex process," said Archit Gupta, Founder and CEO, at Clear (formerly ClearTax) while talking exclusively with CNBC-TV18.com.

Previously, taxpayers manually handled the reporting of ITC reversals and reclaims in Table 4 of the GSTR-3B return. This was largely based on self-declarations, without an effective mechanism for tax authorities to verify or validate whether a claimed ITC indeed corresponded to a previously reversed ITC.

"This gap has now been bridged by the ECRS statement. The Electronic Credit and Re-claimed Statement enables easy monitoring of ITC reversals and reclaims by taxpayers. It also grants tax authorities upfront visibility into the balance of ITC reversals and the maximum eligible amount for reclaims on any given date," Gupta told CNBC-TV18.com.

Additionally, a validation check has been integrated into the GSTR-3B form.

"If a taxpayer attempts to claim excessive ITC in Table 4D(1) compared to the sum of ITC reversal balances from previous periods, the system will trigger a warning message. This mechanism ensures that taxpayers remain within legally allowable limits when claiming ITC," he said.

The ECRS facility will be accessible to monthly filers starting from the August 2023 return period. Quarterly filers, on the other hand, can access it beginning with the July-September 2023 return period.

According to Gupta, taxpayers' immediate actions involve reporting their accumulated ITC reversed balance as a one-time task, to be completed by November 30, 2023.

"Monthly filers should report ITC reversed until the July 2023 return period, while quarterly filers should report until the April to June 2023 return period. Between November 30 and December 31, 2023, taxpayers can make amendments to their opening balance up to three times. After December 31, 2023, this option will be withdrawn," he said.

With the introduction of this new ITC reversal and reclaimed ledger, GST taxpayers are encouraged to take certain measures to remain compliant:

1. Conduct thorough reconciliation from April 2022 onwards to determine ITC claimed, reversed, reclaimed, ineligible ITC, and pending reclaims.

2. Create a separate ledger in their books of accounts for all ITC reversals and reclaims moving forward.

3. Maintain a distinct ledger for temporary ITC reversals without commingling them with permanent reversals or ineligible ITC.

4. Document a trail of all ITC claimed, reversed, and reclaimed to facilitate the tracking of reclaims back to initial claims.

5. Regularly reconcile GSTR-2B with GSTR-3B and the purchase register across tax periods to prevent double reclaims or missing reclaims.