GSTN Introduces System Blocks on Excess ITC Re-claim and RCM ITC in GSTR-3B

GSTN Advisory, Dated 29-12-2025

1. Regulatory Background

The Goods and Services Tax Network (GSTN) has issued an advisory along with FAQs introducing system-based validations for:

• ITC Reclaim Ledger, and
• Reverse Charge Mechanism (RCM) Liability/ITC Statement

These validations are aimed at strengthening accuracy and discipline in Input Tax Credit (ITC) and RCM reporting in Form GSTR-3B.

2. Purpose of the System Validations

The newly introduced validations seek to ensure that:

• ITC reclaimed in GSTR-3B is supported by available balances in the ITC Reclaim Ledger
• RCM ITC is claimed only after corresponding RCM liability is duly discharged
• Excess or unsupported ITC claims are prevented at the return-filing stage itself, rather than being detected post-filing

3. Blocking of GSTR-3B Filing

As clarified through the FAQs:

• GSTR-3B filing will be blocked if:

1. 1. The ITC being reclaimed exceeds the balance available in the ITC Reclaim Ledger, or
   2. The RCM ITC claimed exceeds the balance reflected in the RCM Liability / ITC Statement

The GST system will not permit submission of GSTR-3B until these discrepancies are resolved.

4. Mandatory Actions Before Filing GSTR-3B

To enable successful filing of GSTR-3B, taxpayers must:

• Reverse any excess ITC claimed beyond the available reclaim balance, or
• Pay the additional RCM liability, where RCM ITC is claimed in excess

Only after such adjustment—either through reversal or payment—will the system allow submission of the return.

5. System-Driven Validation Mechanism

Under the revised framework:

• Ledger balances act as hard controls
• Claims reported in GSTR-3B must strictly align with:

1. 1. ITC Reclaim Ledger balances, and
   2. RCM Liability/ITC Statement balances

• Filing is accepted only after full alignment is achieved

This ensures real-time compliance and reduces post-filing disputes.

6. Implications for Taxpayers and Practitioners

For Taxpayers

• Enhanced need for pre-filing reconciliation
• Continuous tracking of:

1. 1. Reversed vs. reclaimed ITC
   2. RCM liability payments and ITC availability

• Reduced risk of notices and mismatches after return filing

For Tax Professionals

• Greater importance of:

1. 1. Ledger-based validations before filing
   2. Advising clients on timely reversals or payments

• Need to update internal checklists and SOPs for GSTR-3B preparation

7. Regulatory Intent

Through these validations, GSTN aims to:

• Promote system-driven compliance
• Prevent incorrect or premature ITC claims
• Strengthen the integrity of the GST credit mechanism
• Reduce downstream litigation and enforcement action

8. Key Takeaway

GSTN has implemented mandatory system validations ensuring that ITC reclaimed and RCM ITC claimed in GSTR-3B do not exceed ledger balances. If excess claims are made, GSTR-3B filing will be blocked until the excess ITC is reversed or the additional RCM liability is paid—making ledger reconciliation a critical pre-filing requirement.

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