In a bid to streamline compliance and improve transparency in the input tax credit (ITC) claims, the Goods and Services Tax Network (GSTN) has introduced Electronic Credit Reversal and Re-claimed Statement (ECRS). The ledger aims to provide a comprehensive view of ITC reversals, their reclaims, and the balance on a particular date.
We’ll delve into the details of ECRS, its significance, and the steps taxpayers should take to ensure effective ITC management, however, here is a quick look into the background:
- CBIC had issued Circular No. 170/02/2022-GST to clarify the disclosure requirements for the breakdowns of ITC claims, ineligible/blocked input tax credits, and reversals thereof effective from the August 2022 return period.
- As per the Circular, reclaimable/temporary reversals would be required to be disclosed and deducted to arrive at ‘Net ITC Available’ which gets credited to the electronic credit ledger – and any subsequent reclaims over ITC available as per GSTR-2B would have to be disclosed under 4D(1) in GSTR-3B.
Table 4 of GSTR-3B
|4A(5) ITC Available (whether in full or part) – All Other ITC||The ITC reversed under 4B(2) and reclaimed at a later date should be added here as well as in 4D(1).|
|4B(2) ITC Reversed – Others||Reversal of ITC which is not permanent i.e., reclaimable in future, such as reversals under Rule 37 for non-payment to vendors within 180 days or under Section 16(2) due to non-receipt of goods shall be shown here.|
|4C Net ITC Available (A) – (B)||Credited to electronic credit ledger|
|4D(1) Other Details – ITC reclaimed which was reversed under Table 4B(2) in earlier tax period||ITC reversed under 4B(2) and reclaimed at a later date should be shown here as well as in 4A(5).|
Tracking of the reversals and reclaims
The reversal of ITC under 4B(2) and subsequent reclaims were so far based on self-declarations and the absence of a tracking mechanism posed a challenge for tax authorities to validate if the ITC claimed in excess of that available as per GSTR-2B indeed pertained to previous reversals.
Declaration of opening balance of accumulated ITC reversal which is pending for re-claim
The taxpayers are required to submit a one-time declaration for the accumulated reversals reported in GSTR-3B until the July 2023 return period (April – June 2023 return period for quarterly filers) which they intend to reclaim in subsequent tax periods.
- When reporting the accumulated balance of reversed ITC, it is important to take into account only those ITC that were previously reversed in 4B(2) but are eligible and yet not re-claimed.
- The balance needs to be reported by November 30 and can be amended up to 3 times till December 31.
- The balance shall be credited to ‘Electronic Credit Reversal and Re-claimed Statement’ and shall be used to validate the ITC reclaimed as per Table 4D(1) of GSTR-3B.
Electronic Credit Reversal and Re-claimed Statement
The ECRS is intended to keep track of the amounts that are temporarily reversed under 4B(2) for subsequent re-claim on compliance with the conditions under Section 16 and the CGST Rules. The opening balance of the statement shall be based on the declaration furnished by the taxpayer and the amounts disclosed under 4B(2) of the subsequent periods will be added whereas reclaims under 4D(1) will be deduced on a rolling period basis to arrive at the maximum eligible amount of reclaims as on date.
ECRS provides an effective monitoring mechanism to validate purported ITC reclaims and flag in case of claims beyond the balance available as per GSTR-2B and previous reversals.
Maximizing your ITC claims and staying compliant
Claiming nearly 100% of the ITC and avoiding litigation risk does not go hand in hand – but not always. Here are a few suggestions to remain compliant:
- Conduct a year-till-date reconciliation, starting April 2022, to track ITC claimed, reversed, reclaimed as well as pending for reclaims, and those reported as ineligible.
- Keep a separate ledger specifically for temporary reversals, ensuring they are not mixed with permanent reversals or ineligible ITC.
- Maintain a trail of ITC claims, reversals, and subsequent reclaims to trace the reclaims to the previous reversals.