September 4, 2023
Shaik Musrath

ITC Reversal & Reclaim-Important Changes in August 2023 GST Returns

The Goods and Services Tax (GST) system in India has been a subject of constant evolution since its implementation in 2017. To make compliance easier and more efficient, the government regularly revises and updates its policies and procedures. In August 2023, a significant change is set to take place concerning Input Tax Credit (ITC) reversal and reclaim in GST returns. In this blog post, we'll study the details of this crucial development and what it means for businesses.

What are  ITC Reversal and Reclaim:

Before we look into the changes, let's clarify what ITC reversal and reclaim mean in the context of GST.

Input Tax Credit (ITC):

Input Tax Credit is a mechanism that allows businesses to claim credit for the taxes they have paid on inputs when calculating the GST they owe. This helps prevent the cascading effect of taxes and reduces the overall tax burden on businesses.

ITC Reversal:

 ITC Reversal occurs when a business needs to reverse or give back the credit claimed earlier. This could happen due to various reasons, such as non-payment to the supplier within 180 days or non-receipt of goods/services.

ITC Reclaim, on the other hand, is the process of reclaiming the previously reversed ITC. This can be done once the underlying issues causing the reversal are resolved.

What are Key Changes made in August 2023:

Reduction in the Reversal Period: 

One of the significant changes is the reduction in the ITC reversal period from 180 days to 120 days. This means that if you have not paid your supplier within 120 days from the date of invoice, you will need to reverse the ITC claim.

Timely Reclaim Provisions: 

The new rules also emphasize the importance of resolving issues promptly. Businesses will now have a shorter period to reclaim the reversed ITC, which has been reduced from the current 2 years to 1 year from the date of reversal.

Comprehensive Documentation: 

With these changes, maintaining meticulous records and documentation becomes even more critical. Proper record-keeping will be crucial for demonstrating compliance with the new regulations.

GST Portal Updates: 

It is essential to stay updated with the GST portal's functionality, as the changes will likely be reflected in the online filing process. Businesses should familiarize themselves with the revised procedures for ITC reversal and reclaim.

Impact on Businesses:

The reduction in the ITC reversal period and the shorter window for ITC reclaim will require businesses to be more vigilant and proactive in their GST compliance. Failing to meet these deadlines could result in loss of credit and increased tax liability.

To adapt to these changes effectively, businesses should consider the following steps:

Review Internal Processes: 

Examine your payment processes to ensure that invoices are settled within the prescribed 120-day period to avoid ITC reversal.

Enhance Record-Keeping: 

Invest in robust record-keeping systems and processes to track ITC reversals and reclaims accurately.

Stay Informed: 

Keep a close eye on government notifications and updates related to GST, as rules and procedures may change over time.


The upcoming changes in ITC reversal and reclaim procedures in GST returns, effective from August 2023, are aimed at developing the tax credit system and ensuring compliance. Businesses need to be aware of these changes, adapt their processes accordingly, and stay committed to maintaining accurate records. This will not only help them avoid unnecessary tax liabilities but also contribute to a smoother and more efficient GST regime in India.


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