ITC Reversal: Electronic Credit Reversal and Reclaimed Statements in GST

Tracking of Input Tax Credit (ITC) reversals and reclaims became complicated with the changes made to reporting in Table 4 of the GSTR-3B. Therefore, the GST Network introduced an all-new ledger in August 2023. The Electronic Credit Reversed and Re-claimed Statement (ECRS) helps any taxpayer track the balance of ITC that is reversed temporarily and reclaimed later. 

Continue reading to learn all about the new functionality, actions to be taken, and implications.

What is the electronic credit reversal and reclaimed statement?

The GST portal introduced the ECRS, similar to the electronic cash or credit ledgers. It has been termed as the ‘Electronic Credit Reversal and Re-claimed statement’ (ECRS). It contains the balance of ITC reversed and reclaimed thereof as on a particular date. 

The facility is available from

Monthly filers - August 2023 return period onwards

Quarterly filers - Q2 (July-September 2023) return period onwards

Access the ledger by-

Logging in to GST portal >> Report ITC Reversal Opening Balance

OR

Go to ‘Services’ from the homepage >> Ledger >> Electronic Credit Reversal and Re-claimed Statement >> Report ITC Reversal Opening Balance

Why has ECRS been introduced?

The reporting of ITC reversed and reclaimed is done in Table-4 of GSTR-3B return by the taxpayers themselves. They have to manually perform reconciliations to arrive at the values for reversals and reclaims. Further, the tax authorities did not have a mechanism to verify or validate if a given ITC claim pertains to a previously reversed ITC temporarily, such as CGST Rule 37, CGST Sections 16(2)(b) and (c), auto-populated credit notes, and inadvertent errors in the past months. 

The reclaimable ITC earlier reversed in Table 4(B)(2) of the GSTR-3B may be subsequently claimed in Table 4(A)(5) on fulfilment of necessary conditions. Such reclaimed ITC in Table 4(A)(5) must also be explicitly reported in Table 4D(1). 

Let’s understand how the ECRS ledger helps both taxpayers and tax authorities:

The ECRS was introduced to keep a tab on the extent of ITC reversals and reclaims easily by taxpayers. It provides the taxpayer and tax authority visibility of the ITC reversed balance upfront and the maximum amount eligible for reclaims on a given date. Here are some more benefits to taxpayers listed down-

• It promotes the tracking of ITC that has been reversed in Table 4B(2) and thereafter re-claimed in Table 4D(1) and 4A(5) for every month/quarter.
• It helps to ensure that the ITC reclaimed aligns with the corresponding ITC reversed.
• It allows taxpayers to avoid any clerical mistakes.

How does ECRS work?

A taxpayer must report the opening balance of ITC reversed but not yet reclaimed. The GST portal will maintain a record of reversal and re-claimed amounts monthly/quarterly. A validation check is added to the GSTR-3B form.

Cases of temporary ITC reversals that can be reclaimed later on are as follows-

• Rule 37- ITC for not settling a purchase invoice within 180 days of the invoice date 
• Section 16(2)(b)- ITC on goods/services not yet received 
• Section 16(2)(c)- ITC where the suppliers have not paid their GST dues
• Auto-populated credit notes
• Businesses can also report ITC availed in the Table 4(A) in any previous tax period due to an inadvertent error. 

Afterwards, the GST system triggers a warning message if you attempt to reclaim excess ITC in Table 4D(1) compared to the sum of ITC reversal balances from the previous periods, if any, and the current period’s ITC reversal in Table 4B(2). 

Action for Taxpayers to Stay Compliant

Taxpayers must report the accumulated ITC reversed balance as a one-time action. So, report the ITC reversal opening balance within the timeline to ensure you can carry forward the benefit of ITC to be deferred later.

Reporting ITC reversal opening balance last date is as follows-

Report the opening balance of ITC reversals (accumulated ITC reversed balance) by 31st January 2024*-

For Monthly filers - Until the July 2023 return period 

For Quarterly filers - Until the Q1 (April-June 2023) return period 

There will be three amendment chances given to correct mistakes in the opening balance-

Until 31st January 2024**- Both reporting and amendment facilities will be available

After 31st January 2024 until 29th February 2024**- Only amendments will be allowed

After 29th February 2024**- No amendments will be allowed

*Earlier, the last date was 30th November 2023. However, it was extended through a GSTN advisory dated 29th December 2023.

**Earlier, the last date for amendments was 31st December 2023. However, it was extended through a GSTN advisory dated 29th December 2023.

ITC reversal opening balance example

Consider a situation where Exzeed Ltd has the below ITC reversal opening balance as of 1st July 2023:

CGST: Rs.19,000

SGST: Rs.20,000

IGST: Rs.9,000

Further, it reversed IGST value of Rs.10,000 in July 2023. It pertained to part of the ITC value that was claimed in June 2023 but certain raw material had not been received upon inspection. Further, Exzeed Ltd reversed CGST and SGST of Rs.20,000 each in July 2023 earlier claimed since the vendor, Joe & Co failed to pay tax dues to the government. It pertained to a professional services bought by it in May 2023. 

Exceed Ltd had reversed an ITC of Rs.15,000 each of CGST and SGST in June 2023. So, it reclaimed that ITC in July 2023 when it received the raw materials. ITC reversal also involves interest charge.

Therefore the opening balance and closing balance for the month will be arrived at as follows-

Necessary Changes in Process to Ensure On-going Compliance

The introduction of a dedicated statement/ledger on the GST system to track ITC reversals and reclaims pushes a taxpayer to undertake additional measures, such as-  

• Perform a reconciliation from April 2022 till date for ITC claimed, ITC reversed, ITC reclaimed, ineligible ITC, and pending reclaims to arrive at the opening balance for the ITC reversal statement.
• Carry out frequent reconciliations of GSTR-2B vis-à-vis GSTR-3B and purchase register, preferably across periods, to avoid double reclaims or missing reclaims.
• Account for the ITC reversals and reclaims through a separate ledger in the books of accounts if not practiced earlier.
• Maintain a separate account ledger for temporary ITC reversals without mixing it with permanent ITC reversals or ineligible ITC.
• Maintain a trail of the ITC claimed, ITC reversed, and ITC reclaimed to be able to map the ITC reclaims back to the initial ITC claims and be audit-ready.

The introduction of electronic credit reversal and re-claimed statement in GST has helped taxpayers to easily track their temporary ITC reversals and reclaims. It will allow them to avoid interest outflow on excess reclaims due to incorrect computations.