GST New Advisory on ITC Blocking in GSTR-3B

(Updated as on 29 December 2025)

Background of the Advisory

To strengthen ITC discipline, avoid clerical errors, and ensure one-to-one tracking of ITC reversal, reclaim, and RCM credits, GSTN has introduced two important electronic statements (ledgers) on the GST portal:

1. Electronic Credit Reversal and Re-claimed Statement (ITC Reclaim Ledger)
2. RCM Liability / ITC Statement (RCM Ledger)

Initially, these ledgers were informational with warning messages only, but GSTN has now announced strict system validations which will soon block filing of GSTR-3B in case of excess ITC claims or negative balances.

This advisory is extremely important for all regular GST taxpayers, especially those dealing with:

• ITC reversals under Rule 37, 42, 43
• Provisional ITC reversals and later reclaims
• Reverse Charge Mechanism (RCM)

1. Electronic Credit Reversal & Re-claimed Statement (ITC Reclaim Ledger)

Introduction & Applicability

• Introduced from:
  • August 2023 for monthly filers
  • July–September 2023 quarter for QRMP taxpayers
• Purpose:
  To track ITC that is temporarily reversed and its subsequent re-claim

What this Ledger Captures

This statement tracks:

• ITC reversed in Table 4(B)(2) of GSTR-3B
• ITC reclaimed in:
  • Table 4(A)(5)
  • Table 4(D)(1)

It ensures that only ITC earlier reversed can be reclaimed.

Access Path

Dashboard → Services → Ledger → Electronic Credit Reversal and Re-claimed Statement

2. Existing System Behaviour (Till Now)

Currently:

• If a taxpayer reclaims more ITC than available reversal balance,
  👉 Warning message appears
• But GSTR-3B filing is still allowed

GSTN observed that many taxpayers ignored warnings, leading to:

• Negative ledger balances
• Excess ITC utilisation
• Future disputes and notices

3. RCM Liability / ITC Statement (RCM Ledger)

Introduction & Applicability

• Introduced from:
  • August 2024 for monthly filers
  • July–September 2024 quarter for QRMP taxpayers

Purpose

To ensure:

• RCM liability payment and ITC claim are properly matched
• No excess RCM ITC is claimed without payment

What this Ledger Tracks

• RCM liability declared in Table 3.1(d) of GSTR-3B
• Corresponding ITC claimed in:
  • Table 4(A)(2) – RCM on inward supplies
  • Table 4(A)(3) – RCM on import of services

Access Path

Services → Ledger → RCM Liability/ITC Statement

4. Opening Balance Facility (Important Relief Provided Earlier)

GSTN had provided multiple opportunities to taxpayers to:

• Declare opening balance in both ledgers
• Adjust past excess reversals / excess RCM ITC
• Clean up historical mismatches prior to system implementation

This facility was meant as a one-time corrective window.

5. Major Upcoming Change – SYSTEM VALIDATION (Very Important)

GSTN has now announced that shortly:

❌ Negative balances will NOT be allowed
❌ Excess ITC claims will BLOCK GSTR-3B filing

6. New Validation Rules – Explained Simply

A. Validation for ITC Reclaim (Table 4(D)(1))

Reclaimed ITC in Table 4(D)(1) must be:

≤
(Closing balance of ITC Reclaim Ledger
+
ITC reversed in Table 4(B)(2) of the same return)

➡️ Meaning:

• You can reclaim ITC only if it was reversed earlier
• Or reversed again in the same month

B. Validation for RCM ITC Claim

RCM ITC claimed in Table 4(A)(2) & 4(A)(3) must be:

≤
(RCM liability paid in Table 3.1(d) of same period
+
Closing balance of RCM Ledger)

➡️ Meaning:

• You cannot claim RCM ITC unless:
  • RCM tax is paid, or
  • Sufficient RCM balance exists

7. What If Ledger Balance Is Already NEGATIVE?

A. Negative ITC Reclaim Ledger

This indicates excess ITC was reclaimed earlier.

Mandatory action to file GSTR-3B:

• Reverse excess ITC in Table 4(B)(2)

📌 If no ITC available:

• Reversal amount will be added to tax liability automatically

Example:

• Closing balance = –₹10,000
• Reverse ₹10,000 in Table 4(B)(2)
• If ITC insufficient → pay as tax

B. Negative RCM Ledger

This means RCM ITC claimed without adequate payment.

To file GSTR-3B, taxpayer must either:

1️⃣ Pay additional RCM liability in Table 3.1(d)
OR
2️⃣ Reduce ITC claimed in Table 4(A)(2)/(3)

Example:

• RCM ledger balance = –₹5,000
• Options:
  • Pay ₹5,000 RCM tax
  • OR reduce ₹5,000 RCM ITC claim

8. Impact on GSTR-3B Filing (Practical Consequences)

Once validations are activated:

• ❌ GSTR-3B cannot be filed with negative ledger
• ❌ Excess reclaim / RCM ITC not permitted
• ✔ Only clean, reconciled ITC allowed

This is a major shift from advisory mode to enforcement mode.

9. Key Takeaways for Taxpayers & Professionals

✔ Reclaim only ITC which was actually reversed
✔ Ensure RCM ITC is backed by payment
✔ Regularly monitor both ledgers
✔ Clear negative balances immediately
✔ Do not ignore warning messages
✔ Align GSTR-3B with ledger balances every month

10. Who Must Be Extra Careful?

• Businesses with:
  • Vendor payment delays
  • Rule 37 reversals
  • Provisional ITC
  • RCM-heavy transactions
• CAs & consultants filing returns for multiple clients
• Taxpayers who adjusted ITC manually in past years

This advisory marks a strong move towards automated ITC governance.
The era of manual adjustments and post-facto explanations is ending.

👉 Ledger balance = Filing eligibility

Taxpayers should review their ITC Reclaim Ledger and RCM Ledger immediately and correct mismatches before system validation goes live, to avoid return filing blocks, cash outflow, and notices.

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