Government May Grant Two-Month Window to Vet Input Tax Credit on Credit Notes: A Move to Ease GST Compliance

In a welcome turn of events for companies throughout India, the government is said to be contemplating amending the Central Goods and Services Tax (CGST) Rules to grant recipients of goods and services two months to scrutinize and align their input tax credit (ITC) in respect of credit notes. This planned amendment, expected to be finalized shortly, is set to bring relief to Goods and Services Tax (GST) payers by simplifying compliance procedures and lessening the pressure of instant action on credit note adjustments.

Background: The ITC and Credit Note Conundrum

In the current GST system, companies can claim ITC to reduce the tax they pay on inputs against the tax they collect on their outputs. Credit notes, where suppliers provide these when goods are returned or prices are revised after sale, are pivotal in this process. Still, reversal or modification of ITC based on these credit notes has been a contentious issue. The recipients are generally expected to reverse ITC within the same tax period (a month) as the credit note is issued, subject to timely filing of their GST returns. Non-compliance can lead to penalties or disqualification from availing ITC, putting considerable pressure on businesses to move quickly.

This strict timeline has been a point of irritation for taxpayers, especially small and medium businesses (SMEs), who usually do not have the capability to keep track of and reconcile credit notes in real time. The complexity is further added by the Invoice Management System (IMS) launched by the government in October 2024, which tracks and validates invoices automatically but has not yet completely resolved the credit note adjustment timeline.

The Proposed Change: A Two-Month Breather

The government is considering relaxing these guidelines, according to people in the know. The amendment to the CGST Rules proposed would double the period within which recipients of a credit note could either reject or accept it and make a corresponding adjustment to their ITC. This implies that the recipient would have until the close of May if a supplier credits them in March, for instance, to capture the adjustment on their GST returns without facing disallowance of the ITC.
A government official privy to the talks said, "The credit note can now stay in pending mode for another month beyond the existing single tax period.". But if the tax return is not submitted within time, this two-month period will be the longest extension possible—no additional delays will be tolerated." This amendment is viewed as a realistic measure to reconcile compliance with business realities, providing companies with additional time to check credit notes and synchronize their records.

What’s Next?

Although the amendment has not yet been formally notified, sources suggest it may be announced as soon as this month, in line with the current debate on the Finance Bill, 2025. Companies are recommended to wait for the formal notification and get ready to incorporate the new timeline into their compliance processes.
As India's GST infrastructure comes of age, incremental developments like these portend a shift toward a better-balanced structure—one that tries to avoid revenue leakage and support taxpayers alike. The two-month period in which to screen ITC on credit notes, at least for now, represents a positive step forward, combining relief and accountability with India's enormous GST ecosystem.

Also Read: New Invoice Management System (IMS) in GST: A Game-Changer for Input Tax Credit (ITC) Claims