Govt may ease norms to allow 2-month window for ITC on credit notes

Move would give taxpayers flexibility and preclude a financial burden

In a major relief to goods and services tax (GST) payers, the government is likely to amend Central GST (CGST) Rules, allowing recipients of goods and services up to two months to accept or reject a credit note and adjust the input tax credit (ITC) taken.

 

At present, taxpayers who use the Invoice Management System (IMS) have to accept or reject credit notes outright.

 

The move will give taxpayers flexibility and preclude a financial burden.

 

A credit note is given by the seller to the buyer in cases of sales returns, discounts, and over-billing to reduce the amount payable by the buyer or adjust it against future payments.

 

The IMS is an automated system to track and verify invoices issued by businesses to help them in claiming ITC. The system was rolled out in October last year by the Centre.

 

“Now the recipient of goods and services will have the option to keep the credit note pending for one tax period (one month as GST return is filed on monthly basis). However, in case one delays filing the tax return on time, one will get a month more to keep the credit note in pending mode and not more than that,” an official said.

 

At present the IMS is not mandatory though most large GST payers use the system. The official said the proposed move was a step to make the IMS mandatory in due course.

 

The changes in CGST Rules have become necessary because the Finance Bill, 2025, proposes to amend the CGST Act to make it mandatory for suppliers to ensure reversal of ITC taken by recipients to reduce their own (suppliers) tax liability.  

 

Vivek Jalan, partner with Tax Connect Advisory Services, said the 15 million taxpayers of GST, big or small, had been affected by it since credit notes were the most critical feature of IMS.

 

“Every relaxation in tax law comes with a rider. In this case, in case the recipient keeps the credit note pending and thereafter accepts it in the next tax period, one will be liable to pay interest for one month. This would be a dampener and industry has to prepare accordingly.”

Easing burden 

> Currently, invoice management system (IMS) users must accept or reject credit notes immediately

> Recipients can keep credit notes pending for one tax period; delayed returns grant an extra month

> Proposed changes align with Finance Bill 2025, which mandates ITC reversal by suppliers

> IMS is not yet mandatory but may become compulsory in the future

> Tax expert warns that delayed credit note acceptance may attract one-month interest