GST Instruction dated 19.03.2025: A Guide to Verifying and Reversing Ineligible ITC

The Government of NCT of Delhi, Department of Trade and Taxes, Policy & Research Branch has issued an official instruction document addressing the verification and monitoring of the reversal of ineligible Input Tax Credit (ITC) under the GST framework. The directive aims to ensure proper fund transfers from Integrated GST (IGST) to the State by correcting discrepancies in FORM GSTR-3B reporting. It provides guidelines for taxpayers and tax officers to identify, report, and reverse ineligible ITC, thereby preventing revenue loss and ensuring compliance with GST laws. 

Let’s understand the details!

Key Highlights of the Instruction dated 19^th March 2025

• It has been observed by the department that the Input Tax credit which is reversible u/s 17(5) i.e. Blocked credit, Rule 38 (reversal of credit by banks / FI),  Rule 42 (reversal when input is used for non-business purposes or for exempted sale) or Rule 43 (reversal of credit on capital goods in case of exempted sale); is not entered in reversal fields, but directly reduced from the ITC amount while filing Form GSTR 3B.
• This affects the distribution of IGST to the states when it comes to department processing of GST.
• To fill such gaps, the Government has issued instructions dated 19^th March 2025. It specifies the steps in which the taxpayer should enter his data in the ITC table of Form GSTR 3B to provide accurate details to the department.
• Following are the steps to be followed while entering data in Table 4 of GSTR-3B by the user:
  

1. The total ITC (eligible as well as ineligible) of the taxpayer will be auto-populated from statement in FORM GSTR-2B in different fields of Table 4A of FORM GSTR-3B. This will not include the following ITC:

• Ineligible ITC on account of limitation of time period as specified in section 16 (4) of the CGST and DGST Act, 2017; or 
• where the recipient of an intra-State supply is located in a different State than that of place of supply.

Eligible ITC

2. The next step is taxpayer should calculate the amount of ineligible or reversible ITC which is included in Table 4A. These are the permanent reversals. This may include the following amounts:

• Ineligible ITC as per section 17(5) i.e. blocked credit
• ITC on inputs that are used for non-business purposes (Rule 42)
• ITC on inputs which are used for effecting exempt supplies (Rule 42)
• ITC on capital goods which are used for non-business purposes (Rule 43)
• ITC on capital goods which are used for effecting exempt supplies (Rule 43)

The ITC which is ineligible u/s 17(5) and reversible as per rule 42/43 is to be entered in Table 4(B)(1) of FORM GSTR-3B.

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3. Now, the taxpayer shall calculate the ITC reversals which are temporary in nature, and can be reclaimed in the future, which is included in Table 4A. These reversals may include the following:

• Rule 37- non-payment of consideration to the supplier within 180 days
• Section 16(2)(b) - non-receipt of goods or services or both in the same tax period in which the invoice has been received
• Section 16(2)(c) - non-payment of tax by the supplier

Above mentioned reversals are to be entered in Table 4(B)(2) of GSTR 3B:

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4. This gets added to the Electronic Credit Reversal and Re-claimed Statement. Such input tax credit may be reclaimed in the appropriate table in Table 4(A) of FORM GSTR-3B on fulfillment of necessary conditions. Further, all such reclaimed input tax credits shall also be shown in Table 4(D)(1) of FORM GSTR-3B and this gets deducted from the Electronic Credit Reversal and Re-claimed Statement. 

• Accordingly, the “Net ITC Available” in Table 4 (C) of FORM GSTR 3B will be as per the formula {4A - [4B(1) + 4B(2)]} and the same will be credited to the electronic credit ledger of the taxpayer and also in Table 6 of FORM GSTR-3B to set-off the output tax dues, if any.

• Input tax credit not available, on account of the limitation of time period as specified in Section 16(4) of the CGST/DGST Act, 2017 or where the recipient of an intra-State supply is located in a different State /UT than that of the place of supply, may be reported by the taxpayer in Table 4(D)(2) of FORM GSTR-3B. Such details are available in Table 4 of FORM GSTR 2B.

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5. The reversals shall be monitored by the GST officers regularly. This process includes the following steps:

• After receiving a list of GSTINs, the Proper Officer shall verify the details furnished in GSTR-3B with the details of GSTR-2B. After identifying the non-reversal of ineligible credit in Table 4B and sending of letters, the selected taxpayer shall be contacted repeatedly after a week’s break over the phone and through e-mail or meetings directing the taxpayer to file the next monthly GSTR 3B return with the reversal of the ineligible credit. 
• Even after all these, if the taxpayer refuses to reply with proof of reversal of the ineligible IGST credit, a notice U/s 127 of the Central Goods and Services Tax Act/Delhi Goods and Services Tax Act, 2017 read with IGST Act, 2017 shall be issued proposing to impose a penalty U/s 125 for furnishing incorrect returns. Proper Officer may also take any other action permissible under law.

6. A dashboard has been developed for Ward Officers for sharing information of such cases along with updation of action taken on the said dashboard on regular basis. This dashboard is also being reflected at the level of all the Zonal Incharges.

Conclusion

The Government of NCT of Delhi has issued comprehensive guidelines to enhance the accuracy of IGST settlement by ensuring proper reversal and reporting of ineligible Input Tax Credit (ITC) in FORM GSTR-3B. The initiative aims to prevent revenue loss, improve compliance, and ensure that states receive their rightful share of IGST transfers. By providing a structured verification and monitoring process, the directive reinforces taxpayer accountability while streamlining ITC reversals. Effective implementation of these measures will contribute to a more transparent and efficient GST system, minimizing discrepancies and strengthening fiscal discipline.

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