GST taxpayers will be required to reverse by November 30 the input tax credit (ITC) claimed in the previous financial year in case their suppliers fail to deposit the due tax by September 30, the Finance Ministry has said. The taxpayers, however, can reclaim the ITC later following the deposit of taxes by the supplier. 

The ministry has inserted Rule 37A in Central Goods and Services Tax rules to give effect to the new provision. 

“Where input tax credit has been availed by a registered person..., but the return in Form GSTR-3B for the tax period corresponding to the said statement of outward supplies has not been furnished by such supplier till September 30..., the...input tax credit shall be reversed...on or before November 30 following the end of the such financial year,” the ministry has said.

Abhishek Jain, a partner (indirect tax) of KPMG in India, has said that insertion of Rule 37A merits attention as the same provides for the instances and the manner where ITC is required to be reversed in case of non-payment of tax by the supplier. 

“Companies should take note of these changes and align business practices accordingly,” Mr Jain has added. 

Rajat Mohan, a senior partner of AMRG & Associates, has said that this change will benefit only select cases in litigation due to two reasons.

"Firstly, it is only a prospective change that will not curate any benefit till 2021-22. Secondly, very few cases will be able to qualify the conditions stipulated in these rules,” Mr Mohan opines.