GST Compliance: Significant Amendments for the Current Financial Year

The Goods and Services Tax (GST) framework is subject to regular amendments through notifications, circulars and Finance Act provisions. FY 2025-26 has introduced several important changes that businesses — manufacturers, traders, and service providers alike — must incorporate into their compliance processes.

Introduction of GSTR-1A

One of the significant procedural changes for FY 2025-26 is the operationalisation of GSTR-1A. This is a new amendment return that allows a registered taxpayer to amend details furnished in GSTR-1 for the same tax period before filing GSTR-3B. The key features are:

• GSTR-1A can be filed after GSTR-1 is filed and before GSTR-3B is filed for the same period.
• Amendments made through GSTR-1A are auto-populated into GSTR-3B, ensuring that the outward supply data and the tax liability in GSTR-3B remain consistent.
• This eliminates the earlier practice of making corrections only in the subsequent month's GSTR-1 through amendment tables.

Businesses should review their invoice-level data after filing GSTR-1 and use GSTR-1A where corrections are necessary before the GSTR-3B filing deadline.

Rule 86B: Restriction on Use of ITC for Payment of Output Tax

Rule 86B continues to apply to registered persons whose taxable supply (excluding exempt and zero-rated supply) exceeds ₹50 lakhs in a month. Under this rule, at least 1% of the output tax liability must be paid in cash — the balance can be set off from the Electronic Credit Ledger.

There are specific exclusions to this restriction, including:

• Taxpayers who have paid income tax exceeding ₹1 lakh in each of the last two financial years.
• Taxpayers who have received a refund of more than ₹1 lakh in the preceding financial year on account of export or inverted duty structure.
• Taxpayers whose supply is predominantly to government entities.

Businesses close to the ₹50 lakh monthly threshold should monitor their turnover and maintain adequate cash balance in the Electronic Cash Ledger to avoid non-compliance.

E-Invoicing: Revised Threshold and System Updates

E-invoicing under GST has been progressively made applicable to a wider base of taxpayers. As of the current financial year:

• E-invoicing is mandatory for taxpayers with aggregate annual turnover exceeding ₹5 crore in any preceding financial year.
• The Invoice Registration Portal (IRP) generates an Invoice Reference Number (IRN) and a QR code that must be present on every tax invoice issued to a registered recipient.
• E-invoices are auto-populated into the supplier's GSTR-1, reducing manual data entry and reconciliation effort.

Businesses falling within the threshold must ensure their billing software is integrated with the IRP. Non-issuance of e-invoices where mandatory is treated as non-issuance of a valid tax invoice, which can result in denial of ITC to the recipient.

Key CBIC Circulars and Clarifications

The Central Board of Indirect Taxes and Customs (CBIC) has issued several circulars during FY 2025-26 clarifying aspects of GST law, including:

Place of Supply for Services: Clarifications on the place of supply for cross-border services, particularly for software, cloud-based services and data processing services provided to overseas recipients.

ITC on Employee-Related Expenses: Circulars clarifying the eligibility of ITC on expenses such as employee insurance, canteen facilities, and leased accommodation provided by employers.

Valuation of Corporate Guarantees: Following amendments to valuation rules, the GST treatment of corporate guarantees provided by holding companies to subsidiaries (and vice versa) has been clarified, impacting group entities significantly.

Businesses should review these circulars in the context of their specific transactions and assess whether any adjustments to ITC claims or output tax positions are required.

Input Tax Credit: Key Compliance Points

ITC continues to be the most contentious area of GST compliance. For FY 2025-26, key points include:

• ITC can only be claimed to the extent it appears in the taxpayer's GSTR-2B.
• ITC on capital goods must be spread over the useful life (typically 60 months), and reversal obligations on disposal or change of use must be tracked.
• ITC on inputs used partly for business and partly for exempt or non-business purposes must be reversed under the proportionate reversal rules (Rule 42 and 43).
• Businesses should conduct periodic reconciliation of books of accounts with GSTR-2B to identify ineligible ITC and make timely reversals.

Annual Return and Reconciliation Statement

The GSTR-9 (Annual Return) and GSTR-9C (Reconciliation Statement) for FY 2024-25 are due to be filed during the current financial year. Key points:

• GSTR-9 is mandatory for taxpayers with aggregate turnover exceeding ₹2 crore.
• GSTR-9C (self-certified reconciliation) is mandatory for taxpayers with aggregate turnover exceeding ₹5 crore.
• The annual return requires reconciliation of ITC as per books, GSTR-3B, and GSTR-2A/2B, and any differences must be explained or adjusted.

Compliance Checklist for FY 2025-26

• Verify e-invoicing applicability and ensure IRP integration
• Use GSTR-1A for amendments before GSTR-3B filing each month
• Monitor Rule 86B applicability and maintain adequate cash ledger balance
• Reconcile GSTR-2B with purchase register monthly
• Review CBIC circulars for impact on specific transactions
• Prepare for GSTR-9 / GSTR-9C filing for FY 2024-25