In July 2022, the government implemented specific modifications to the GSTR-3B return form, particularly altering the data reporting processes for Tables 3 and 4. These changes were initially communicated in July through Notification No. 14/2022 – Central Tax. Subsequently, in September, the GSTN released the revised format for Table 4 of the GSTR-3B. The updated Table 4 format now mandates a more granular classification of input tax credit (ITC), distinguishing between eligible, ineligible, restricted, reversed, and reclaimed credits, alongside other relevant ITC data. This article will explore the new modifications to Table 4's structure and detail how taxpayers should report their ITC in future GSTR-3B filings.

Contents of Table 4 of GSTR-3B and Applicability

Table 4 of the GSTR-3B return provides a comprehensive breakdown of all ITC-related information for a specific return period. This encompasses ITC accrued from imported goods and services, capital goods, inward supplies subject to reverse charge, and ITC distributed by an Input Service Distributor (ISD). It also includes data on ineligible ITC, ITC reversals under various rules and sections of the Central Goods and Services Tax (CGST) Act and Rules, unavailable ITC, and reclaimed ITC. Accurate declaration of ITC amounts is crucial as it directly impacts the net tax liability and the total GST payable to the government. Inaccurate reporting in this table could lead to official notices and penalties. The new format for Table 4 became effective from the August 2022 return period.

Old Format of Table 4 of GSTR-3B

Under the previous format of Table 4 of GSTR-3B, taxpayers were required to report all available ITC in Table 4(A). This section was automatically populated from the GSTR-2B statement and specifically excluded any ineligible ITC. In Table 4(B), taxpayers recorded all ITC that was reversed in accordance with Rules 42 and 43 of the CGST Rules, as well as any other reversals.

• Rule 42 imposes restrictions on ITC availability for supplies partially used for business and exempt supplies.
• Rule 43 similarly restricts ITC on capital goods based on the same criteria.

The net ITC eligible for claim was then displayed in Table 4(C). Finally, ineligible ITC as per Section 17(5), such as ITC on goods or services for personal consumption, motor vehicles (with specific exceptions), certain insurance premiums, and club memberships, was to be reported in Table 4(D).

New Format of Table 4 of GSTR-3B

The government revised Table 4, effective from the August 2022 return period, making ITC reporting in GSTR-3B more complex. The updated Table 4 now comprises four main sections: 4(A), 4(B), 4(C), and 4(D). For each tax period, the total ITC figure is automatically populated in Table 4(A) from the GSTR-2B statement, with the exception of ITC unavailable due to limitation periods or place of supply rules. Taxpayers must now accurately categorize their ITC into eligible and ineligible portions for GSTR-3B reporting. This allows for the deduction of ineligible ITC from the auto-populated total ITC figure. The subsequent step involves separating ineligible ITC into temporary and permanent reversals. Temporary reversals refer to ITC that can be subsequently reclaimed. Table 4(B) of the GSTR-3B form is divided into two parts: 4(B)(1) and 4(B)(2). Taxpayers are now required to report all non-reclaimable reversals of input tax credit in Table 4(B)(1). This includes reversals mandated by:

• Rule 38 of the CGST Rules, concerning ITC restrictions for banking companies.
• Rules 42 and 43 of the CGST Rules, as previously explained.
• Section 17(5) of the CGST Act, as previously explained.

Notable additions to this section for reporting include Rule 38 and Section 17(5). In Table 4(B)(2), taxpayers must report all reclaimable reversals, such as ITC restricted by:

• Rule 37 of the CGST Rules, pertaining to non-payment of sale consideration within 180 days.
• Section 16(2)(b) of the CGST Act, where goods or services have not yet been received.
• Section 16(2)(c) of the CGST Act, where suppliers have not remitted their GST dues.
• Auto-populated credit notes.

This section also allows taxpayers to report ITC claimed in Table 4(A) in a prior tax period due to an unintended error. The net ITC will be calculated and displayed in Table 4(C), based on the formula: 4(A) – 4(B) = 4(C).

Note: Any ITC previously reversed under Table 4(B)(2) can be reclaimed in Table 4(A)(5) of the GSTR-3B return for the appropriate tax period. A breakdown of such reclaimed ITC is then provided in Table 4(D)(1) of the same return. Lastly, Table 4(D) consists of two sections: 4(D)(1) and 4(D)(2). Taxpayers should utilize 4(D)(2) to report ITC that is legally unavailable. Examples include ITC restricted by Section 16(4) for being reported by the supplier after November 30th of the subsequent financial year or after the annual GST return filing, whichever occurs first. Another instance is ITC restricted due to Place of Supply (POS) rules, such as CGST/SGST on hotel rooms in a different state.

Procedure for Taxpayers While Filing GSTR-3B

Taxpayers must follow these steps when filing their GSTR-3B:

1. The total ITC, encompassing both eligible and ineligible amounts, is automatically populated from GSTR-2B into Table 4(A), excluding ITC unavailable due to Section 16(4) or POS rules.
2. Taxpayers report non-reclaimable (permanent) ITC reversals in Table 4(B)(1).
3. Taxpayers report reclaimable (temporary) ITC reversals in Table 4(B)(2). If such ITC is reclaimed in the future, it should be done in Table 4(A)(5) upon meeting the relevant conditions. In this part, taxpayers may also reverse ITC inadvertently claimed in a previous tax period.
4. Any reclaimed ITC must also be reported in Table 4(D)(1).
5. The net available ITC will be displayed in Table 4(C) and credited to the taxpayer's Electronic Credit Ledger.
6. ITC that is unavailable due to the time limitation specified in Section 16(4) or POS rules should be reported in Table 4(D)(2).

Why Ineligible ITC under Section 17(5) is Now Reported in Table 4(B) Instead of Table 4(D)

With the updated Table 4 format, Table 4(A) now auto-populates the total figure from the GSTR-2B, which includes ineligible ITC. If this ineligible ITC is not correctly segregated and reversed in Table 4(B), it will erroneously accumulate in the taxpayer's net ITC balance, which is incorrect and against regulations. Therefore, ineligible ITC must be precisely reversed, deducted, and reclaims accurately reported to arrive at the correct net ITC figure. The government's objective is to ensure that taxpayers declare exact values of ineligible ITC and claim only eligible amounts. This initiative helps the government reconcile the data reported in GSTR-3B with GSTR-2B, and GSTR-9 with GSTR-3B.

Impact of These Changes on Taxpayers

These changes necessitate taxpayers to maintain a distinct ledger in their accounting records specifically for ineligible ITC. The new requirements demand invoice-level tracking to categorize ITC into eligible, ineligible, unavailable, permanently reversible, and temporarily reversible categories. All reclaimable ITC must be meticulously monitored to ensure accurate claims in the appropriate tax period. This also applies to credit notes. Furthermore, these modifications emphasize the need for frequent, preferably automated and real-time, reconciliations of all GSTR-2B transactions with the Purchase Register (PR). Lastly, taxpayers must retain a comprehensive trail of all ITC-related information, at both the section and document level, to prepare for potential future audits or notices.