mandatory separate disclosure of ITC reversals under specific rules

one of the core reforms in the Central Goods and Services Tax (Third Amendment) Rules, 2025 (Notification No. 13/2025-Central Tax, dated 17 Sept 2025, effective 22 Sept 2025) is the mandatory separate disclosure of ITC reversals under specific rules — namely Rules 37, 37A, 38, 42, and 43.

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🔹 1. Rule 37 – Non-payment to supplier within 180 days

• What it covers: If payment (value + tax) to supplier not made within 180 days, ITC earlier availed must be reversed.

• New requirement:

  • The amount so reversed must now be specifically reported under the “Rule 37” head in GSTR-9 / 9C.

  • Any re-availment upon subsequent payment also to be shown distinctly.

• Impact: Enables tax officers to track “re-claimed” credits separately and match them to supplier payments.

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🔹 2. Rule 37A – Supplier failed to file GSTR-3B

• What it covers: Introduced in 2022; if supplier doesn’t file GSTR-3B by 30 Nov following the FY, recipient must reverse the ITC claimed earlier.

• New requirement:

  • Disclosure of reversals made due to supplier non-filing is to be shown separately under “Rule 37A”.

• Impact: Improves visibility of ITC reversals caused by non-compliant vendors.

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🔹 3. Rule 38 – Reversal by Banking / NBFCs

• What it covers: Option for banks/NBFCs to claim 50 % of eligible ITC.

• New requirement:

  • Such 50 % reversals (deemed ineligible) must be separately reported under “Rule 38”.

• Impact: Standardises sector-specific ITC reversals for audit trail.

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🔹 4. Rule 42 – Input & Input Services for both taxable and exempt supplies

• What it covers: Proportionate reversal of common ITC used for taxable + exempt supplies.

• New requirement:

  • Reversals computed through Rule 42 formulas must appear under their own head.

  • Any year-end adjustment (final reversal/additional availment) also to be reported distinctly.

• Impact: Transparent year-end reconciliation between provisional and final reversal.

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🔹 5. Rule 43 – Capital Goods used for both taxable and exempt supplies

• What it covers: 5-year proportionate reversal for capital goods used commonly.

• New requirement:

  • Annual reversal computed under Rule 43 to be disclosed separately.

• Impact: Allows department to verify whether cumulative reversals over the useful life are correctly applied.

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🔸 Why this change matters

Earlier	Now (post-amendment)
All ITC reversals were clubbed together in one table (without breakup).	Each rule’s reversal must be reported under distinct headings, making the annual return far more granular.
Difficult for department to trace type of reversal.	Enables direct rule-wise scrutiny — easier for audit and analytics.
Voluntary format differences in GSTR-9 led to confusion.	Uniform, rule-linked structure mandated from FY 2025-26 onward.

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✅ Compliance implications

1. Accounting systems must tag reversals rule-wise during the year (not just at annual return time).

2. ERP / GST software must have separate heads for Rule 37, 37A, 38, 42, 43.

3. Reconciliation with GSTR-2B and vendor filings becomes crucial for Rule 37A compliance.

4. Documentation trail (payment proofs, computation sheets) should be maintained to substantiate each category.