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Disclosure of Ineligible ITC & ITC Reversal in GSTR – 3B time to change the practice

Disclosure of Ineligible ITC & ITC Reversal in GSTR – 3B time to change the practice

GSTR 3B is a summary return which come into existence since GSTR-2 and GSTR-3 never saw the light of the day due to technical glitches in functioning of matching system as stated in section 41 and section 43 of CGST act,2017. Recently ,Rule 61(5) of CGST Rules have been amended vide Notification no.49/2019-Central Tax Dated 09-10-2019 w.e.f.01-07-2017,where it has been provided that where a return in FORM GSTR-3b is required to be furnished by a person referred to in rule 61(1) then such person shall not be required to furnish the return in FORM GSTR3- . Thus, GSTR – 3B has the status of monthly return filed under section 39 of CGST Act.2017.


As per the contents of GSTR – 3b, Table 4 contains the detail on Eligible Credit. In this table, one needs to capture the following details:

  1. ITC Available: On inward supplies, on which the ITC was availed, such as import of Goods or Services, supplies liable to reverse charge, supplies from ISD, and other inward supplies, as applicable.
  2. ITC Reversed: On inputs/input service /capital goods used for non-business purpose, or party used for exempt supplies. Also, if the depreciation is claimed on tax component of capital goods, plant and machinery then the ITC will not be allowed. Such reversal needs to be captured in this table.
  3. Eligible ITC: Calculated by deducting ITC Reversed from ITC Available.

Ineligible ITC:  Details of GST paid on inward supplies listed in negative list, which are not eligible to input tax credit. This is only required to be reported for disclosure purpose as far as taxpayers is concerned

However, the practice followed in the industry by majority of Taxpayers is that;

  1. Only Eligible ITC which is required to claimed is captured in GSTR-3B or
  2. ITC Available & ITC Reversed if any captured in GSTR – 3B

It has been observed in most of the GSTR -3b,Ineligible ITC is not captured/reported in GSTR-3B.One of major factor for the above is that all the Ineligible input tax credit is clubbed with relevant expenses and booked as a part of the total cost in the book of accounts and does not impact the Input Tax Credit GL of the taxpayer. Thus, in the absence of availability of this information relating to ineligible ITC, many taxpayers do not report this information in Colum 4(D) of GSTR – 3B.

Recently a Circular has been issued by commissioner, SGST Dept., Govt. of Kerala, Thiruvananthapuram  [Circular No.: CT/3626/2020-C1 dated 16th June 2020], where by the issue

of Non-disclosure of Ineligible ITC has been highlighted which is resulting in significant tax losses to the State exchequer due to short transfer of IGST Fund to the state kitty.

Fund Transfer Mechanism by Central to States:

As per the Circular, the modalities of transfer of fund from Centre to States and,  vice-versa on account of cross utilization of IGST or SGST as the case may be,  and apportionment of IGST between Central, States and within states are laid down in Section 53 of CGST/SGST Act and, Section 17 and 18 of IGST Act read with Goods And Service Tax Settlement of fund rule,2017.

The above data will furnished by GSTN to the competent authority who in turned transfer the fund to State basis the statutory provision as mentioned above that. The aforesaid funds transfer is predominantly based on the data furnished under GSTR-3B. Thus, the success of the above process is dependent on the correct and complete disclosure data in GSTR-3B.

Correct Mechanism For Reporting ITC in GSTR-3B:

The Circular has further clarified the following in respect of reporting in table 4 of GSTR-3B;


Reporting Guidelines

(A) ITC Available (Whether In Full Or Part )

All Eligible Credit Including Reversal But Excluding Ineligible Credit To Be Reported Under Respective Heads

(2) Import Of Services

(3) Inward Supplies Liable To Reverse Charges (Other Than 1 &2 Above)

(4) Inward Supplies From ISD

(5) All Other ITC

(B) ITC Reversed


(1) As Per Rule 42 & 43 Of CGST Rules

ITC Reversal As Per Rule 42& 43

(2) Other

ITC  Reversal As Per Rule 37 And Any Other Reversal

( C ) Net ITC Available (A)-(B)

Auto Populated

(D) Ineligible ITC


(1) As Per Section 17 (5)

Ineligible Credit As Per Section 17 (5)

(2) Others

Shall Include Ineligible /Blocked Credit As Per Section 17 (4) Read With Rule 38 And Any Other Ineligible ITC.

Correction in Earlier Period Returns:

Since the data disclosed in GSTR-3B by majority tax payers in not correctly depicted, the Circular has instructed to make following correction where data in respect of ineligible ITC and ITC reversal will not correctly reported;

  1. Correction in data in respect of F.Y 2018-2019 To be Corrected in Annual Return GSTR – 9 of F.Y 2018-2019
  2. Correction in data in respect of F.Y 2019-2020 To be reported in GSTR – 3B filed between April 2020 to September 2020.
  3. Correction in data in respect of April 2020 and subsequent period to be adjusted in GSTR-3B of subsequent period.

Author’s wives:

It will recommend that Circular has made an important clarification in respect of disclosure of ITC. Since the incorrect disclosure is costing significant tax losses to State exchequer, is quite possible that the above data will requisitioned at the time of assessment and notices with respect to same may be received by Taxpayers.



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