Author: virevonadmin

ITC When Your Supplier Has Not Paid GST: Section 16(2)(c), Rule 37A and How to Protect Your Credit

One of the most frustrating GST situations for a buyer is paying the full invoice, GST included, only to find that the supplier never deposited the tax. The rules on ITC reversal supplier not paid tax situations can then require you to give up the credit, at least until the supplier complies. Two provisions matter most: section 16(2)(c) of the CGST Act and Rule 37A of the CGST Rules.

The timing is important this month. For FY 2025-26 invoices, suppliers had until 30 September 2026 to file their GSTR-3B, and buyers must reverse credit on defaulting suppliers’ invoices by 30 November 2026. This guide explains how the provisions work, how to reverse and reclaim correctly, and what practical steps protect your credit in future.

Key takeaways

Section 16(2)(c) makes ITC conditional on the supplier actually paying the tax to the government.
Under Rule 37A, if the supplier has not filed GSTR-3B for the period by 30 September of the following year, the buyer must reverse the related ITC by 30 November.
For FY 2025-26, the reversal deadline is 30 November 2026; the portal flags such invoices in the September 2026 GSTR-2B.
Report the reversal in Table 4B(2) of GSTR-3B and reclaim it through Table 4D(1) once the supplier files and pays.
Regular vendor checks, sensible payment terms and good documentation are the best protection.

What section 16(2)(c) requires

Section 16(2) lists the conditions for claiming ITC. Clause (c) requires that the tax charged on the supply has actually been paid to the government, either in cash or through the supplier’s own admissible credit. The buyer, however, has no direct way to confirm what the supplier has paid. In practice, the department relies on the supplier’s GSTR-3B filing as the signal.

This condition has been debated before several courts, particularly for buyers who paid in full and had genuine documents. The position can depend on facts and on jurisdiction, so any demand based on a supplier’s default should be examined carefully rather than simply accepted.

How Rule 37A works

Rule 37A gives a mechanical process for supplier default:

You availed ITC on an invoice or debit note that appeared in your GSTR-2B.
The supplier did not file the GSTR-3B for that tax period by 30 September following the end of the financial year.
You must reverse the ITC in a GSTR-3B filed on or before 30 November of that year.
If you do not reverse it in time, the credit is payable with interest under section 50.
When the supplier later files the GSTR-3B, you can reclaim the credit.

Rule 37A does not apply to reverse charge supplies, since you pay that tax yourself.

Timeline for FY 2025-26 invoices

Date	What happens
30 September 2026	Last date for suppliers to file GSTR-3B for FY 2025-26 periods without triggering Rule 37A
14 October 2026	September 2026 GSTR-2B is generated, showing ITC to be reversed under Rule 37A
20 October 2026 or the QRMP date	Reverse in the GSTR-3B for September 2026 or the July to September quarter
30 November 2026	Outer date for reversal without interest consequences
Any later date	Reclaim when the supplier files and pays

Reporting the reversal and reclaim in GSTR-3B

Reversal: report in Table 4B(2), which is meant for reversals that can be reclaimed later.
Reclaim: once the supplier files, report the reclaimed amount in Table 4A(5) and also in Table 4D(1), so the portal can match it against the earlier reversal.
Ledger: your Electronic Credit Reversal and Re-claimed Statement tracks the balance. Reclaims cannot exceed what you have reversed.

A worked example

A manufacturer bought packaging material in January 2026 for ₹5,00,000 plus GST of ₹90,000. The invoice appeared in GSTR-2B and ITC was claimed. The supplier did not file its GSTR-3B for January 2026 by 30 September 2026.

The September 2026 GSTR-2B flags ₹90,000 under Rule 37A.
The manufacturer reverses ₹90,000 in Table 4B(2) of its September 2026 GSTR-3B, filed on 20 October 2026.
In February 2027, the supplier files the pending return and pays the tax with interest.
The manufacturer reclaims ₹90,000 in its February 2027 GSTR-3B, through Tables 4A(5) and 4D(1).

Because the reversal was made before 30 November 2026, no interest arises for the buyer.

How to protect your credit

Before you buy

Check GSTIN status and return filing history on the GST portal for new vendors.
Collect KYC documents such as registration certificate, PAN and bank details.
Classify vendors by risk, giving closer attention to new or irregular filers.

While you pay

Link the GST portion of payment to compliance, for example by releasing it after the invoice appears in GSTR-2B or after the supplier’s GSTR-3B is filed.
Add contract clauses requiring timely filing and allowing recovery of ITC lost due to supplier default, with interest.
Pay through banking channels and keep proof of every payment.

Every month

Reconcile GSTR-2B with your books and track suppliers whose invoices are missing. Our GSTR-2B reconciliation guide explains the process.
Use IMS actively, keeping doubtful invoices pending rather than letting them be deemed accepted. See our IMS practical guide.
Keep evidence of genuineness: purchase orders, delivery challans, e-way bills, transport records and stock entries.

If you receive a notice

Sometimes the department identifies a supplier’s default through data analysis and issues a notice to the buyer. Respond with facts: proof of receipt of goods or services, payment including GST, the supplier’s documents, and your own reversal or reclaim position. If the supplier has since filed and paid, show that clearly. Our guide on replying to a GST show cause notice under sections 73, 74 and 74A covers the structure of a good reply.

Frequently asked questions

Do I have to reverse ITC if my supplier has not paid GST?

Under Rule 37A, if the supplier has not filed GSTR-3B for the relevant period by 30 September following the financial year, you must reverse the ITC by 30 November of that year.

Can I claim the ITC again later?

Yes. Once the supplier files the pending GSTR-3B and pays the tax, you can reclaim the credit through Tables 4A(5) and 4D(1) of GSTR-3B.

Where do I report a Rule 37A reversal?

In Table 4B(2) of GSTR-3B, which is used for reversals that may be reclaimed later.

What if I miss the 30 November deadline?

The ITC becomes payable along with interest under section 50. It is best to reverse on time and reclaim later if the supplier complies.

If you would like help reviewing supplier compliance or reversing and reclaiming ITC correctly under Rule 37A, our team would be glad to assist.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 6, 2026

Offshore Accounting Support for CPA Firms: Models, Security and Onboarding

Offshore accounting for CPA firms has become a mainstream answer to a familiar problem: more client work than the team can comfortably handle, especially between January and April. Rather than stretch existing staff or turn work away, many US firms now add trained accountants in India who work inside the firm’s own systems, under the firm’s review and sign-off.

Done well, an offshore team gives partners and managers time back for review, advisory and client relationships. Done poorly, it creates rework and security worries. The difference usually comes down to three choices: the engagement model, the security framework and the onboarding plan. This article covers each in practical detail.

Key takeaways

The three common models are dedicated staff, a pooled managed team and seasonal or project support.
Before tax return information is shared with anyone outside the United States, taxpayer consent under the section 7216 regulations is required.
The offshore provider’s controls should fit within your firm’s written information security plan (WISP).
Start with well-defined, repeatable work, then expand once quality is proven.
Partners and managers keep review and sign-off; the offshore team prepares.

Choosing an engagement model

Model	How it works	Best for	Watch-outs
Dedicated staff	Named accountants work only for your firm, in your tools and on your schedule	Firms wanting an extension of their own team	Needs your training time and a steady workload
Pooled managed team	Provider assigns work to a team with its own reviewer; fee often per client or per output	Bookkeeping and write-up clients with standard processes	Less direct control over who does each task
Seasonal or project	Extra capacity for busy season, catch-up work or special projects	Tax season peaks, backlog clean-ups	Ramp-up time each season; plan early

Many firms combine models: one or two dedicated staff for monthly accounting, plus seasonal help for 1040 and 1065 preparation from January to April.

What work suits offshore support

Work that is rule-based, well documented and reviewable is the natural starting point:

Monthly bookkeeping, bank and card reconciliations and accrual entries.
Write-up work and financial statement drafting for compilation engagements.
Tax return preparation from organised source documents, reviewed by your staff.
Workpaper preparation, fixed asset schedules and depreciation roll-forwards.
Payroll journal entries, 1099 data preparation and sales tax workings.
Audit support tasks such as tie-outs, vouching schedules and lead sheets, under your firm’s supervision.

Work that typically stays onshore includes client-facing advisory, judgmental positions, engagement acceptance and final sign-off.

Security and compliance framework

Taxpayer consent for tax return information

The Treasury regulations under section 7216 generally permit a US tax return preparer to share return information with its own staff or another preparer in the United States for preparation without consent. However, where the recipient is located outside the United States, the regulations require the taxpayer’s prior written consent in the prescribed form. Social security numbers are subject to additional restrictions. Build consent into your engagement letters and client onboarding, and confirm the wording with your own advisers.

Your WISP and the provider’s controls

Tax professionals are expected to maintain a written information security plan under the FTC Safeguards Rule, and IRS Publication 5708 offers a template. Your offshore provider should fit into that plan. Look for:

Access through your environment, such as a virtual desktop or your cloud practice tools, rather than files downloaded locally.
Multi-factor authentication on every system.
Least-privilege access, so each person sees only the clients and folders they work on.
Device controls: managed machines, no USB storage, screen locking and restricted printing.
Staff agreements covering confidentiality, acceptable use and background checks.
Incident response: a named contact and a clear timeline for reporting any suspected breach to you.
Offboarding: immediate removal of access when a team member leaves.

A 90-day onboarding plan

Days 1 to 30: foundation

Sign engagement terms, confidentiality agreements and data protection addendum.
Set up access with MFA and least-privilege permissions.
Share your procedures, checklists, workpaper standards and naming conventions.
Start with two or three pilot clients with clean prior-year files.

Days 31 to 60: build quality

Review every deliverable in detail and log review points by category.
Hold a weekly 30-minute call to walk through recurring review points.
Update checklists so that lessons are captured once, not repeated.

Days 61 to 90: scale

Add clients in batches of similar complexity.
Move to sample-based review for areas with consistently low review points.
Agree service levels: turnaround times, response times and a monthly quality report.

How pricing usually works

Dedicated staff are commonly priced as a fixed monthly fee per full-time accountant, which suits firms with steady workloads. Pooled teams often charge per client, per return or per month of books closed, so costs move with volume. Seasonal support is usually agreed as a block of hours or a fixed number of returns. Whichever structure you choose, write down what is included, how extra work is approved and how rates change after the first year.

Measuring whether it works

Track a small set of measures every month:

Turnaround time from document receipt to draft ready for review.
Review points per deliverable, trending down over time.
Reviewer hours saved, compared with preparing the work in-house.
On-time delivery against the agreed calendar.
Client satisfaction, especially response times during busy season.

A simple example

A ten-person firm adds two dedicated offshore accountants in October to take over monthly bookkeeping for 40 small-business clients. By January, review points per client have fallen from about eight to three, and two in-house seniors have freed up enough time to handle the firm’s growing tax planning work. For busy season, the firm adds seasonal support for individual returns with organised source documents.

Firms that serve small businesses directly may also find our guide to outsourced bookkeeping for US small businesses useful for explaining the model to clients. For software decisions, see our comparison of QuickBooks Online vs Xero.

Frequently asked questions

Is offshore accounting for CPA firms compliant with US rules?

It can be, with the right safeguards. Obtain taxpayer consent under the section 7216 regulations before sharing return information outside the US, and fit the provider’s controls into your WISP.

Who signs the return or the financial statements?

Your firm does. The offshore team prepares work under your supervision, and your licensed professionals review and sign off.

How long does it take for an offshore team to become productive?

Most firms see steady output within 60 to 90 days, provided they start with clear procedures and a few pilot clients.

Which model should a small firm start with?

A single dedicated accountant or a small pooled engagement for bookkeeping work is usually the easiest way to start and learn.

If your firm is exploring offshore accounting support, we would be glad to discuss a model and onboarding plan that fits your practice.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 5, 2026

New Income Tax Form Numbers from 2026: Form 16, 26AS, 12BB and More Mapped

The new income tax forms 2026 are one of the most practical changes that came with the Income-tax Act 2025. Along with the new Act, the Income-tax Rules, 2026 took effect from 1 April 2026 and renumbered almost every form. The familiar Form 16 is now Form 130, Form 26AS is Form 168, and the employee investment declaration Form 12BB is Form 124.

The purpose of most forms has not changed, so this is mainly about knowing which number now means what, and which set applies to which year. This article maps the most commonly used forms, explains the transition and lists what employers, deductors and individuals should update.

Key takeaways

The Income-tax Rules, 2026 contain 333 rules and 190 forms, down from 511 rules and 399 forms, according to the Income Tax Department.
Form 16 is now Form 130, Form 16A is Form 131, and Form 26AS is Form 168.
Forms 15G and 15H are combined into a single Form 121.
The tax audit report in Forms 3CA, 3CB and 3CD is replaced by Form 26 for new-Act years.
Returns, certificates and audits for FY 2025-26 still use the old form numbers.

Why the forms were renumbered

The old Income-tax Rules, 1962 had grown over decades, with forms numbered in the order they were added: Form 10-IE, Form 3CEB, Form 26QB and so on. Some forms overlapped, and a few had become obsolete. The rewrite grouped forms by subject, merged similar ones and removed those no longer needed. The result is a shorter, more logical set, but one that requires everyone to relearn familiar numbers.

The new income tax forms 2026: old to new map

Purpose	Old form (1962 Rules)	New form (2026 Rules)
TDS certificate for salary	Form 16	Form 130
TDS certificate for other payments	Form 16A	Form 131
TCS certificate	Form 27D	Form 133
Quarterly TDS statement, salary	Form 24Q	Form 138
Quarterly TDS statement, other resident payments	Form 26Q	Form 140
TDS on property purchase and certain rent	Forms 26QB, 26QC	Form 141
Quarterly TDS statement, non-residents	Form 27Q	Form 144
Annual tax statement	Form 26AS	Form 168
Declaration for no TDS (individuals, senior citizens)	Forms 15G, 15H	Form 121
Employee claims for HRA, LTA, deductions	Form 12BB	Form 124
Application for lower or nil TDS	Form 13	Form 128
Foreign remittance information and certificate	Forms 15CA, 15CB	Forms 145, 146
Relief for salary arrears	Form 10E	Form 39
Foreign tax credit statement	Form 67	Form 44
Tax audit report	Forms 3CA, 3CB, 3CD	Form 26

For any form not listed here, use the mapping utility on the Income Tax Department’s website rather than guessing. Some forms were merged, so a single new number may replace more than one old form.

Which numbers apply to which year?

The new forms follow the new law, which applies from tax year 2026-27. The old forms continue for earlier years.

Salary for FY 2025-26: employers issued Form 16 in mid-2026 under the old rules. That is correct and does not need to be reissued.
Returns for FY 2025-26 (AY 2026-27): filed on the old ITR forms, with the tax audit report in Forms 3CA/3CB and 3CD. See our tax audit guide for FY 2025-26.
Deductions made from 1 April 2026: TDS certificates and quarterly statements relating to tax year 2026-27 use the new numbers, such as Form 130 and Form 138 for salary.
Corrections to old quarters: correction statements for periods before 1 April 2026 continue in the old format.

Example: a salaried employee in 2026-27

Priya works for a Noida-based company. In April 2026 she submits her proof of rent and investments using Form 124 instead of Form 12BB. Her employer deducts TDS on salary and reports it each quarter in Form 138. After March 2027, she receives Form 130 as her salary TDS certificate and checks her tax credits in Form 168 before filing her return for tax year 2026-27. In June 2026, she also received a Form 16 for FY 2025-26, which she used for her return filed in 2026.

What to update now

Employers and payroll teams

Replace Form 12BB templates with Form 124 in employee portals.
Update payroll software to generate Form 130 and file Form 138.
Revise employee communication and FAQs so staff know Form 16 is now Form 130.

Businesses that deduct or collect tax

Map each TDS return to its new form: Form 140 for resident non-salary payments and Form 144 for non-residents.
Issue Form 131 and Form 133 certificates for tax year 2026-27.
Update vendor onboarding checklists to request Form 121 where individuals claim no deduction.

Individuals

Submit Form 121 to banks instead of Form 15G or 15H where eligible.
Use Form 168 to check tax credits before filing returns for tax year 2026-27.
For foreign tax credit or salary arrears relief, note the new Forms 44 and 39.

Practical tips for the transition

Keep old and new forms in separate folders, labelled by year and law.
When a bank, employer or client asks for Form 16 or 15G, confirm which year they need; the answer decides the form.
Update standard contracts and engagement letters that quote form numbers.
Check that your accounting or ERP system prints the correct form number on certificates generated for each period; many systems allow year-specific templates.
Brief your finance and HR teams with a one-page mapping sheet. Most questions in the first year come from staff who search for an old number and cannot find it on the portal.
Read our explainers on the tax year concept and the Income-tax Act 2025 key changes for the wider context.

Frequently asked questions

What is the new number for Form 16?

Under the Income-tax Rules, 2026, the salary TDS certificate is Form 130. Form 16 continues only for FY 2025-26 and earlier years.

Is Form 26AS still available?

The annual tax statement continues as Form 168 for tax year 2026-27 onwards. Statements for earlier years remain available under the old name.

What replaces Forms 15G and 15H?

Both are replaced by a single Form 121 for declarations that tax need not be deducted on specified income.

Do I need to redo forms already filed for FY 2025-26?

No. Forms, certificates and returns for FY 2025-26 were correctly filed under the old rules and remain valid.

If you would like help updating your payroll, TDS processes or personal tax filings for the new income tax forms, our team is happy to assist.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 5, 2026

Section 16(4) ITC Time Limit and the Section 16(5) Relief Explained

Input tax credit (ITC) under GST does not remain available forever. The Section 16(4) ITC time limit sets a cut-off by which credit relating to a financial year must be claimed. For invoices of FY 2025-26, that cut-off is 30 November 2026, which makes this the right time to check for missed credits.

Section 16(4) has also been the subject of significant litigation and a welcome retrospective relief. Section 16(5), inserted by the Finance (No. 2) Act, 2024, relaxed the time limit for the early years of GST, and section 16(6) protects businesses whose registration was cancelled and later restored. This article explains all three provisions in simple terms, with examples.

Key takeaways

Under section 16(4), ITC on an invoice or debit note must be claimed by 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier.
For FY 2025-26 invoices, ITC should be claimed in a GSTR-3B filed by 30 November 2026.
Section 16(5) allows ITC for FY 2017-18 to 2020-21 claimed in any return filed up to 30 November 2021, with retrospective effect.
Section 16(6) gives businesses whose registration was cancelled and later revoked additional time to claim ITC, subject to conditions.
The special rectification window for old orders under section 16(5) and 16(6) has closed, and amounts already paid are not refundable under the relief.

What the Section 16(4) ITC time limit says

A registered person cannot take ITC on an invoice or debit note after:

30 November following the end of the financial year to which the invoice or debit note relates, or
the date of furnishing the annual return for that year,

whichever is earlier.

In practice, most taxpayers file the annual return later than 30 November, so 30 November becomes the effective deadline. For debit notes, the relevant year is the year in which the debit note is issued, not the year of the original invoice.

Examples for FY 2025-26

Situation	Relevant financial year	Last date to claim ITC
Invoice dated 15 March 2026	2025-26	30 November 2026
Invoice dated 10 April 2025, missed in books	2025-26	30 November 2026
Debit note dated 5 May 2026 on a 2025-26 invoice	2026-27	30 November 2027
Annual return for 2025-26 filed on 20 October 2026	2025-26	20 October 2026 (earlier date)

For a monthly filer, the GSTR-3B for October 2026, due on 20 November 2026, is usually the last regular return in which FY 2025-26 credit can be claimed. If that return is filed after 30 November 2026, the credit claimed in it for the earlier year can be questioned.

Why the deadline matters

Lost credit is a real cost. Unclaimed ITC is effectively additional tax.
Late claims invite notices. Credit claimed after the cut-off is often identified during scrutiny or audit and demanded back with interest.
The date of filing the return counts. ITC is claimed only when GSTR-3B is actually filed, so a late return can push credit beyond the time limit even if it is otherwise valid.

This is also why a monthly GSTR-2B vs GSTR-3B reconciliation is so useful: it catches missing credits long before the deadline.

Section 16(5): relief for FY 2017-18 to 2020-21

The early years of GST saw many businesses file returns late because of system issues, the pandemic and a steep learning curve. As a result, a large number of taxpayers received demands for ITC claimed after the section 16(4) time limit.

Section 16(5) now provides that for invoices or debit notes relating to FY 2017-18, 2018-19, 2019-20 and 2020-21, ITC may be taken in any return under section 39 filed up to 30 November 2021. The provision applies retrospectively from 1 July 2017.

In simple terms, if you claimed ITC for any of those four years in a GSTR-3B filed on or before 30 November 2021, that credit is no longer barred by section 16(4), provided the other conditions of ITC are met.

Section 16(6): relief after revocation of cancellation

Where a registration is cancelled and later revoked, the taxpayer often files pending returns only after revocation, by which time the normal deadline may have passed. Section 16(6) allows ITC on invoices relating to the period between cancellation and revocation, or before cancellation, to be claimed in a return filed up to 30 November following the financial year, or within 30 days of the revocation order, whichever is later, subject to conditions. The credit must not already have been time-barred on the date of the cancellation order.

How the relief was implemented

CBIC issued Circular No. 237/31/2024-GST dated 15 October 2024 explaining how the new provisions apply to different stages of proceedings:

Investigations and pending proceedings: officers were asked to take the new provisions into account.
Pending appeals: appellate authorities apply the amended law while deciding the appeal.
Orders already passed where no appeal was filed: a special rectification procedure was notified on 8 October 2024. Applications had to be filed within six months, so that window has now closed.

Importantly, section 16(5) and 16(6) do not allow a refund of tax or interest already paid, or credit already reversed, for such cases. If you are still facing an old proceeding, it is worth reviewing whether the relief applies before responding; our guide on replying to a GST show cause notice covers the broader process.

A practical checklist before 30 November 2026

Reconcile the full year of purchase records for FY 2025-26 with GSTR-2B.
List invoices not yet claimed, including those where the supplier filed late.
Follow up with suppliers who have not reported invoices, so they appear in GSTR-2B in time.
Review reversals under rule 37 that can be reclaimed after payment.
Check the annual return date: if you plan to file GSTR-9 early, remember that it can bring the deadline forward.
File the October 2026 GSTR-3B on time so that eligible credit is claimed within the limit.

Frequently asked questions

What is the last date to claim ITC for FY 2025-26?

30 November 2026, or the date you file the annual return for FY 2025-26, whichever is earlier.

Does the section 16(4) time limit apply to debit notes?

Yes, but the relevant year is the year in which the debit note is issued, not the year of the original invoice.

Can I still apply for rectification under section 16(5)?

The special rectification procedure required applications within six months from 8 October 2024, so the window has closed. Relief may still be considered in pending proceedings and appeals.

Will I get a refund of ITC reversed earlier because of section 16(4)?

No. The law specifically provides that amounts already paid or reversed in such cases are not refunded under the new provisions.

If you would like help identifying unclaimed ITC for FY 2025-26 before the 30 November deadline, our GST team is happy to help.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 5, 2026

Private Limited Company Registration in India: SPICe+ Process, Documents and Timeline

A private limited company remains the most popular structure for start-ups and growing businesses in India. It offers limited liability, a separate legal identity and an easy route to bring in investors. The good news is that company registration in India is now almost entirely online, through a single integrated web form on the MCA portal called SPICe+.

With complete documents, a company can often be incorporated within about a week or two, and the same process also delivers PAN, TAN and several other registrations. This guide walks through the SPICe+ process step by step, the documents you will need, the fees involved and a realistic timeline.

Key takeaways

SPICe+ is a single web form with Part A for name reservation and Part B for incorporation, filed on the MCA V3 portal.
A private limited company needs at least two directors and two shareholders, with at least one director resident in India.
The government incorporation fee is nil for companies with authorised capital up to ₹15 lakh, but state stamp duty is payable.
Linked forms include the e-MOA, e-AOA and AGILE-PRO-S, which covers GST, EPFO, ESIC, profession tax and a bank account where applicable.
After incorporation, the declaration of commencement of business in INC-20A should be filed within 180 days.

Before you start: basic requirements

Directors: minimum two, maximum fifteen (more with a special resolution). At least one director must have stayed in India for at least 182 days in the financial year.
Shareholders: minimum two, maximum two hundred. Directors can also be shareholders.
Registered office: an address in India where the company can receive communications. It can be rented, owned or even a residential address, with the owner’s consent.
Digital signatures (DSC): every director and subscriber signing the forms needs a valid Class 3 DSC.
Capital: there is no minimum paid-up capital requirement, but choose authorised capital with future funding in mind.

Company registration in India through SPICe+: step by step

Step 1: Choose and reserve a name (SPICe+ Part A)

Propose up to two names that reflect the business and are not identical or too similar to existing companies, LLPs or registered trademarks. Check the MCA name search and the trademark registry before filing. Once approved, the name is reserved for 20 days, within which Part B must be filed. You can also file Part A and Part B together.

Choosing a distinctive name early also helps with branding; our guide to trademark registration in India explains how to protect it.

Step 2: Fill in SPICe+ Part B

Part B collects the core incorporation details:

Registered office address and proof
Authorised and subscribed share capital
Details of directors and subscribers, including DIN allotment for up to three new directors
PAN and TAN applications, which are processed automatically

Step 3: Prepare the linked forms

e-MOA (INC-33): the Memorandum of Association, including the company’s main objects.
e-AOA (INC-34): the Articles of Association, the internal rules of the company.
AGILE-PRO-S: for GSTIN (if opted), EPFO and ESIC registration, profession tax in applicable states, and opening a bank account.
INC-9: the declaration by subscribers and directors, generated by the system.

Step 4: Sign, pay and submit

Affix DSCs on all forms, upload them and pay the fees and stamp duty online. The Central Registration Centre processes the application.

Step 5: Certificate of incorporation

Once approved, you receive the Certificate of Incorporation with the Corporate Identity Number (CIN), along with PAN and TAN. EPFO and ESIC registration numbers are also allotted, and GST registration follows where it was applied for.

Documents checklist

For each director and subscriber	For the registered office
PAN card	Utility bill (electricity, gas, water or telephone), not older than two months
Aadhaar or other identity proof	Rent agreement or ownership proof
Address proof such as bank statement or utility bill, recent	No-objection letter from the owner
Passport-size photograph	Photographs of the premises, if asked
Email ID and mobile number
DSC

Foreign nationals and NRIs need a passport and, typically, notarised or apostilled documents, depending on the country.

Fees and timeline

Government fees: for authorised capital up to ₹15 lakh, the incorporation fee is nil. Name reservation and higher capital attract fees on the MCA fee scale.

Stamp duty: payable on the MOA, AOA and share capital, at rates that vary by state. The portal calculates it automatically.

Timeline: a common range is about 7 to 15 working days from the start, depending on:

How quickly DSCs are issued
Whether the name is approved at the first attempt
Completeness of documents, since resubmission requests add days

After incorporation: the first 180 days

Registration is only the beginning. Early compliance keeps the company in good standing:

Open the bank account and deposit subscription money from shareholders.
File INC-20A, the declaration of commencement of business, within 180 days of incorporation, with proof of subscription money received.
Appoint the first auditor within 30 days of incorporation.
Hold the first board meeting within 30 days, and at least four board meetings each year thereafter, subject to relaxations for certain companies.
Issue share certificates to subscribers within the prescribed time.
Plan annual filings such as AOC-4 and MGT-7; see our guide to ROC annual filing.

If you are still deciding on the structure, our comparison of LLP vs private limited company may help.

Frequently asked questions

How long does company registration in India take?

With complete documents and valid DSCs, a private limited company can often be incorporated in about 7 to 15 working days. Name objections or resubmissions can extend this.

Is there a minimum capital for a private limited company?

No. There is no minimum paid-up capital requirement. Choose authorised capital based on your funding plans, as stamp duty and fees depend on it.

Can a foreign national be a director?

Yes. A foreign national can be a director and shareholder, but at least one director must be resident in India. Foreign investment must also follow FEMA rules.

Do I need GST registration at the time of incorporation?

Not necessarily. GST registration is required when you cross the threshold or fall into a compulsory category. It can be applied for through AGILE-PRO-S or later.

If you would like help registering your private limited company and setting up the first-year compliance, our team would be happy to assist.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 4, 2026

Outsourced Bookkeeping for US Small Businesses: How an India-Based Team Works

For many owners, bookkeeping is the task that always slips to the weekend. Receipts pile up, bank feeds go unreviewed and the books are only caught up when the tax deadline approaches. Outsourced bookkeeping for US small business owners offers a practical alternative: a dedicated remote team keeps the books current every week, while the owner focuses on customers and growth.

India-based teams have become a popular choice because of the combination of skilled accounting staff, familiarity with US software and a time difference that allows work to be done overnight. This article explains how such an arrangement works day to day, what to expect on security and communication, and how to decide whether it is right for your business.

Key takeaways

An India-based bookkeeping team works directly in your cloud accounting software, such as QuickBooks Online or Xero, with access you control.
The time difference allows transactions to be categorized and reconciled overnight, so updated books are ready at the start of your business day.
Typical scope covers bank and card reconciliations, accounts payable and receivable, monthly close and management reports.
Strong access controls, confidentiality agreements and documented processes are central to a secure engagement.
Clean monthly books make year-end tax preparation, 1099 reporting and lender or investor requests far simpler.

What outsourced bookkeeping for a US small business includes

Most engagements are built around a monthly cycle. A typical scope looks like this:

Area	What the team does	How often
Bank and credit card feeds	Categorizes transactions and matches them to receipts	Daily or weekly
Reconciliations	Reconciles bank, card and loan accounts to statements	Monthly
Accounts payable	Records vendor bills, schedules payments for your approval	Weekly
Accounts receivable	Raises invoices, applies payments, follows up on overdue balances	Weekly
Payroll entries	Records payroll journals from your payroll provider	Each pay run
Month-end close	Accruals, prepaid expenses, depreciation, review of balances	Monthly
Reporting	Profit and loss, balance sheet, cash flow and key metrics	Monthly
Year-end support	Organized files and schedules for your tax preparer	Annually

The team does not replace your tax advisor; it makes their job faster by handing over complete, reconciled books.

How a typical week works

Monday to Friday, overnight US time: the team reviews new bank and card transactions, categorizes them and flags anything unusual.
Your morning: you receive a short list of questions, such as an unrecognized charge or a missing receipt, by email or in a shared tracker.
Midweek: vendor bills are entered and a payment run is prepared for your approval. You approve and release payments from your own bank; the team does not move money.
End of week: receivables are updated and overdue customers are highlighted.
Early in the following month: the month is closed and reports are delivered, often with a short commentary on changes in revenue, margins and cash.

Because questions are batched, owners usually spend only a few minutes a day responding, rather than hours doing the work.

Security and confidentiality

Handing over financial data is a serious decision, and a good provider will address it openly. Look for:

Role-based access: team members use their own user IDs in your accounting software, with permissions limited to what they need. Avoid sharing your own login.
No bank transfer rights: payments are prepared for approval but executed only by you or your authorized staff.
Confidentiality agreements with the firm and its staff, and a clear policy on data handling.
Secure systems: multi-factor authentication, managed devices, encrypted storage and restricted use of personal devices.
Document portals for sharing receipts and statements instead of email attachments.
Access logs and exit process: you should be able to see who accessed your file and revoke access at any time.

If your provider also supports tax return preparation, US rules on the use and disclosure of tax return information, including taxpayer consent where such information is handled outside the United States, can apply. Discuss this at the outset.

Software and tools

Most India-based teams work comfortably across QuickBooks Online, Xero and similar platforms, along with receipt capture apps, bill-pay tools and payroll providers such as those your business already uses. If you are choosing software, our comparison of QuickBooks Online vs Xero covers the main differences. The key principle is that the data stays in your subscription, under your ownership.

Records and compliance benefits

Well-maintained books support several US requirements:

Record retention: the IRS generally recommends keeping records for at least three years, and longer in some cases, such as seven years for bad debt or worthless securities claims. Organized digital records make this easy. See the IRS guidance on record keeping.
Information returns: vendor details and W-9 forms collected during the year simplify Form 1099 preparation. For payments made after 31 December 2025, the Form 1099-NEC reporting threshold rose from $600 to $2,000, so accurate vendor-level tracking still matters.
Sales tax: transaction data categorized by state helps you monitor sales tax obligations as your business grows.
Lenders and investors: monthly financial statements are available quickly when a bank or investor asks.

Is it right for your business?

Outsourced bookkeeping tends to work best for businesses that:

Have enough transactions to need regular attention, but not enough to justify a full-time in-house bookkeeper.
Use cloud-based accounting and banking.
Want predictable monthly costs and timely reports.
Are comfortable communicating by email, chat and scheduled video calls.

It may be less suitable if your business relies heavily on paper records or requires someone physically on site.

Getting started

A good onboarding usually includes a short discovery call, read-only access to review the current books, a clean-up plan for any backlog, a written scope with turnaround times, and a trial month before the full engagement.

Frequently asked questions

Is outsourced bookkeeping safe for my business data?

It can be, with the right controls: individual user access, multi-factor authentication, confidentiality agreements, and no authority to move funds. Ask any provider to explain these controls in writing.

Will the time difference slow things down?

Usually it speeds things up. Work is done during your night, so updates and questions are ready when your day begins.

Do I need to change my accounting software?

Generally not. India-based teams typically work in the software you already use, such as QuickBooks Online or Xero.

Does the bookkeeping team file my taxes?

Bookkeeping and tax filing are separate services. The team prepares reconciled books and schedules that your tax preparer can use for filing.

If you would like to explore how an India-based bookkeeping team could support your US business, we would be happy to have a no-obligation conversation.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 4, 2026

The ‘Tax Year’ Concept under the Income-tax Act 2025: Goodbye Previous Year and Assessment Year

For more than sixty years, Indian taxpayers had to juggle two years at once: income was earned in the “previous year” and taxed in the following “assessment year”. The tax year Income-tax Act 2025 concept replaces both with a single, intuitive term. From 1 April 2026, the year in which you earn income is simply your tax year.

It is a small change in wording with a big benefit in clarity. First-time filers no longer need to be told that income of 2026-27 is “assessed in 2027-28”, and businesses dealing with foreign group companies can use a term that sounds familiar. This article explains what the tax year means, how it works for new businesses, and how to handle the transition period when both old and new terms will be in use.

Key takeaways

Section 3 of the Income-tax Act, 2025 defines the tax year as the twelve-month financial year beginning on 1 April.
For a new business, profession or source of income, the first tax year runs from the date it begins until 31 March of that financial year.
Income earned from 1 April 2026 to 31 March 2027 is income of tax year 2026-27; the terms “previous year” and “assessment year” are not used under the new Act.
FY 2025-26 and earlier years continue to be described using previous year and assessment year, because the 1961 Act still governs them.
Update internal templates, contracts and communication so that the right term is used for the right period.

What the tax year means under the Income-tax Act 2025

Under the new Act, the tax year is the period of twelve months of the financial year starting on 1 April. The year in which income is earned and the year used to describe it are now the same. Returns, advance tax, TDS certificates and assessments all refer to the tax year.

Old terms and new terms side by side

Period of earning income	Old description (1961 Act)	New description (2025 Act)
1 April 2025 to 31 March 2026	Previous year 2025-26, assessment year 2026-27	Continues under the 1961 Act
1 April 2026 to 31 March 2027	Not applicable	Tax year 2026-27
1 April 2027 to 31 March 2028	Not applicable	Tax year 2027-28

So the return for income earned in 2026-27, which will be filed in 2027, is the return for tax year 2026-27. There is no separate assessment year label.

New businesses and new sources of income

The old law had a similar rule for new businesses, and the new Act keeps it in simpler words. If a business or profession is set up, or a new source of income comes into existence, during a financial year, the first tax year starts on that date and ends on 31 March of the same financial year.

Example: A private limited company is incorporated and commences business on 15 November 2026. Its first tax year runs from 15 November 2026 to 31 March 2027, and every subsequent tax year is a full financial year. The company does not need to prepare a separate longer period; its first set of tax computations covers four and a half months.

The same applies to an individual who begins freelancing, or who starts earning rental income from a newly acquired property, midway through the year. The income from that new source is computed from its start date within that tax year.

Special situations

The 1961 Act contained certain exceptions where income was assessed in the same year it was earned, for example in the case of persons leaving India permanently, discontinued businesses and some shipping income of non-residents. The new Act continues to deal with such cases through specific provisions, now described with reference to the tax year. If any of these situations applies to you, check the relevant provision of the 2025 Act rather than relying on older practice.

The transition: two sets of terms for a while

The Income-tax Act, 2025 applies to income of tax year 2026-27 onwards. The 1961 Act continues for earlier years through transition provisions. In practice, this means:

The return for FY 2025-26 is filed for assessment year 2026-27 under the 1961 Act. The same applies to the tax audit for FY 2025-26.
Notices for earlier years, such as scrutiny or reassessment, will continue to refer to assessment years.
Advance tax, TDS and TCS for 2026-27 are dealt with under the new Act and refer to tax year 2026-27.
New forms under the Income-tax Rules, 2026, such as Form 130 for salary TDS certificates, use the tax year.

For a broader overview of what else changed, see our guide to the Income-tax Act 2025.

Practical steps for businesses and individuals

Update document templates. Salary certificates, investment declaration requests, vendor TDS communications and board notes should refer to the tax year for 2026-27 onwards.
Label files carefully. In your records, keep folders for “AY 2026-27 (FY 2025-26)” and “Tax year 2026-27” distinct, so that nobody mixes up the governing law.
Review contracts. Agreements that refer to “assessment year” or “previous year” in tax clauses may need a simple update, particularly for multi-year arrangements.
Configure software. Accounting, payroll and TDS software should label periods correctly; most providers have released updates.
Brief your team. A short note explaining which term applies to which period avoids confusion in client and vendor communication.
Keep old references for old years. When replying to a notice for an earlier year, continue to use the assessment year and the 1961 Act sections quoted in it.

Why the change is helpful

The dual-year system was a regular source of errors: taxpayers selected the wrong assessment year while paying challans, or confused the year of a notice. Using a single tax year aligns India with the approach of many other countries, simplifies explanations for non-resident investors and should reduce such avoidable mistakes over time.

Frequently asked questions

What is a tax year under the Income-tax Act 2025?

It is the twelve-month financial year beginning on 1 April. For a new business or a new source of income, the first tax year starts on the date it begins and ends on the following 31 March.

Is assessment year 2027-28 the same as tax year 2026-27?

The period of income is the same, 1 April 2026 to 31 March 2027. However, the new Act uses only the term tax year 2026-27; the assessment year label is not used for this period.

Which year do I select for my FY 2025-26 return?

Assessment year 2026-27, since that year is still governed by the Income-tax Act, 1961.

Does the tax year change due dates for returns or advance tax?

The concept itself only changes terminology. Due dates are set by the Act and rules for each compliance, so check the dates notified for tax year 2026-27.

If you would like help moving your tax records and processes to the new tax year framework, our team is here to help.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 3, 2026

GSTR-2B vs GSTR-3B ITC Reconciliation: A Step-by-Step Monthly Process

Input tax credit (ITC) is claimed in GSTR-3B, but the law now links that claim closely to GSTR-2B, the auto-generated statement of credit available from your suppliers’ filings. A disciplined GSTR-2B reconciliation each month is therefore one of the most valuable habits a GST-registered business can build.

The purpose is simple: claim every rupee of credit you are entitled to, and nothing you are not. When the process is done monthly, differences are small and easy to explain. When it is left to the year end, it becomes a large exercise and can lead to system-generated intimations. This article sets out a practical step-by-step monthly process, with a worked example.

Key takeaways

ITC in GSTR-3B is auto-populated from GSTR-2B, and claims are generally restricted to invoices reflected in GSTR-2B.
GSTR-2B for a month is generated on the 14th of the following month, based on your actions in the Invoice Management System (IMS).
A three-way match of purchase register, GSTR-2B and GSTR-3B keeps claims accurate and supports your annual return.
Reversals under rules 37, 38, 42 and 43 and section 17(5) should be reported separately in Table 4(B), and eligible reclaims tracked carefully.
Where ITC claimed in GSTR-3B exceeds GSTR-2B beyond prescribed limits, the portal can issue an intimation in DRC-01C under rule 88D.

Why GSTR-2B reconciliation matters

Under rule 36(4) and section 16(2)(aa), ITC on supplier invoices is generally available only when the invoice is furnished by the supplier and communicated to you in GSTR-2B. GSTR-3B Table 4 is pre-filled from GSTR-2B. The ITC figures remain editable, but any claim above GSTR-2B must be backed by a clear reason, and large or persistent differences are flagged automatically.

Reconciliation also protects you in the other direction: it identifies credit that appears in GSTR-2B but is not eligible, such as blocked credits, and invoices you have not yet recorded in your books.

The monthly GSTR-2B reconciliation process

Step 1: Close the purchase register

Before the 10th of the following month, make sure all purchase invoices, debit notes and credit notes for the month are recorded with the correct supplier GSTIN, invoice number, date, taxable value and tax.

Step 2: Review records in IMS

Use the Invoice Management System to accept, reject or keep pending supplier records. Complete this before the 14th so that GSTR-2B reflects your decisions.

Step 3: Download GSTR-2B and match

Download GSTR-2B in Excel or JSON and match it with the purchase register, invoice by invoice. Use GSTIN plus invoice number as the primary key, with tolerance for small differences in formatting of invoice numbers.

Step 4: Classify every difference

Put each unmatched item into one of these buckets:

In books, not in GSTR-2B: supplier has not yet filed, filed with the wrong GSTIN, or the invoice was kept pending.
In GSTR-2B, not in books: invoice not yet received, not yet booked, or not your purchase at all.
Value or tax mismatch: wrong rate, wrong place of supply (IGST versus CGST and SGST), or typing errors.
Timing differences: invoice booked in one month and reported by the supplier in another.

Step 5: Decide eligibility and reversals

For matched records, confirm that the credit is actually eligible. Separate out blocked credits under section 17(5), credit relating to exempt supplies under rules 42 and 43, and amounts to be reversed for non-payment to suppliers within 180 days under rule 37.

Step 6: Prepare GSTR-3B Table 4

Table 4(A): credit available, normally as per GSTR-2B, adjusted only for well-documented reasons.
Table 4(B)(1): permanent reversals, such as rules 38, 42, 43 and section 17(5).
Table 4(B)(2): temporary reversals that may be reclaimed later, such as rule 37 reversals.
Table 4(D)(1): reclaim of credit reversed earlier in Table 4(B)(2), once conditions are met.

Step 7: Follow up and document

Send suppliers a list of missing invoices, keep a register of pending items, and note the reason for every difference. This working file will be invaluable when preparing the annual return.

A worked example

Suppose a trading business has the following figures for August 2026.

Particulars	ITC amount (₹)
ITC as per purchase register	4,80,000
Invoices in books but not in GSTR-2B (supplier yet to file)	(35,000)
Invoices in GSTR-2B but not in books (booked in September)	12,000
ITC as per GSTR-2B	4,57,000
Less: blocked credit on staff food and beverages, section 17(5)	(8,000)
Less: unpaid supplier beyond 180 days, rule 37	(6,000)
Net ITC to be availed in GSTR-3B	4,43,000

In this case, Table 4(A) shows ₹4,57,000 as per GSTR-2B. Table 4(B)(1) shows ₹8,000 for the blocked credit, and Table 4(B)(2) shows ₹6,000 under rule 37, which can be reclaimed after payment. The ₹35,000 not yet in GSTR-2B is not claimed this month; it is tracked and claimed when the supplier reports it, within the section 16(4) time limit.

Handling common differences

Supplier has not filed: follow up politely with a list and due date. If the delay continues, consider holding payment of the tax portion until the invoice appears.
Wrong GSTIN used by supplier: ask for an amendment in the supplier’s next GSTR-1 or GSTR-1A, and reject the incorrect record in IMS if it appears under another entity.
IGST charged instead of CGST and SGST: the supplier must correct the invoice; the credit of wrongly charged tax cannot simply be adjusted.
Invoice in GSTR-2B, not received: keep it pending in IMS until the goods or services and invoice arrive.

When the portal raises a DRC-01C intimation

Under rule 88D, if the ITC claimed in GSTR-3B exceeds the ITC available in GSTR-2B beyond the prescribed limits, the portal can issue an intimation in Part A of DRC-01C. You can respond in Part B by paying the excess with interest or by explaining the difference. Businesses that reconcile monthly usually have the explanation ready, which makes the reply quick.

Frequently asked questions

Can I claim ITC for an invoice not shown in GSTR-2B?

Generally no. ITC on supplier invoices is linked to GSTR-2B. Track such invoices and claim the credit in the month they appear, within the time limit.

When is GSTR-2B generated?

On the 14th of the month following the tax period, based on actions taken in IMS. It can be recomputed after changing actions, until GSTR-3B is filed.

Is GSTR-3B Table 4 locked to GSTR-2B figures?

ITC is auto-populated from GSTR-2B and currently remains editable, but differences should be supported by documented reasons. Watch GSTN advisories for any changes.

How often should ITC reconciliation be done?

Monthly, before filing GSTR-3B. A full-year review before the annual return is also useful.

If you would like help setting up a reliable monthly GSTR-2B reconciliation for your business, our team would be glad to support you.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 3, 2026

Invoice Management System (IMS) in GST: Accept, Reject or Keep Pending – A Practical Guide

The Invoice Management System GST functionality, known as IMS, gives recipients a simple way to act on the invoices their suppliers report before those invoices flow into GSTR-2B. For each record you can choose to accept, reject or keep it pending. If you take no action, the record is treated as accepted when GSTR-2B is generated.

Used well, IMS turns input tax credit (ITC) from a month-end surprise into a routine, controlled process. Used carelessly, a single wrong click can remove valid credit or leave an incorrect invoice in your GSTR-2B. This guide explains how each action works, what changed for credit notes from October 2025, and a practical monthly routine for your accounts team.

Key takeaways

IMS lets you accept, reject or keep pending each invoice, debit note and credit note reported by suppliers; no action means deemed acceptance.
GSTR-2B is generated on the 14th of the following month from IMS actions, and you can recompute it after changing actions until you file GSTR-3B.
From the October 2025 tax period, credit notes can be kept pending for one tax period, and you can declare how much ITC you are actually reversing.
Rejection should be reserved for records that are genuinely wrong, as it removes the credit from your GSTR-2B for that period.
A short weekly review in IMS is far easier than a large reconciliation just before the GSTR-3B due date.

How the Invoice Management System in GST works

When a supplier saves or files an invoice in GSTR-1, GSTR-1A or the invoice furnishing facility, it appears on the recipient’s IMS dashboard. The recipient then reviews it. On the 14th of the following month, the GST portal generates GSTR-2B using the recipient’s actions, and the ITC shown there is auto-populated into GSTR-3B.

Some records do not pass through IMS. These include inward supplies under reverse charge, import of goods reported through customs data, ISD distributions and records that are ineligible under the time limit in section 16(4). Those continue to be handled directly while preparing GSTR-3B.

Accept, reject or pending: what each action means

Action	Effect on your GSTR-2B	When to use it
Accept	Included in GSTR-2B for the month	Goods or services received, invoice correct and ITC intended to be claimed
Reject	Excluded from GSTR-2B	Invoice not yours, duplicate, wrong values or wrong GSTIN
Pending	Excluded this month, stays in IMS for later	Goods not yet received, invoice under verification, dispute in progress
No action	Treated as accepted when GSTR-2B is generated	Only where your team has consciously reviewed the record

Accept

Accept records where the supply has been received, the invoice details match your purchase records, and you intend to claim the credit. Accepting does not replace the other conditions for ITC, such as receipt of goods, payment within 180 days and the supplier paying the tax. It simply includes the record in your GSTR-2B.

Reject

Reject records that should not be in your name at all: invoices with the wrong GSTIN, duplicates, fictitious entries, or invoices where the value or tax is wrong. Once rejected, the record will not form part of your GSTR-2B for that period, and the supplier will need to correct it. Communicate with the supplier promptly so that the correction happens in the next return cycle.

Keep pending

Pending is useful when the invoice may be valid but you are not yet ready to claim it, for example when goods are in transit. Pending records stay in IMS and can be acted on later. Remember that the overall time limit for claiming ITC still applies, so pending cannot be used indefinitely. Our guide to the Section 16(4) ITC time limit explains that deadline.

Credit notes in IMS: the October 2025 changes

Credit notes reduce the recipient’s ITC, so recipients were initially reluctant to accept them promptly. GSTN introduced two useful changes for records reported from the October 2025 tax period onwards.

Pending option for credit notes. A credit note can now be kept pending for one tax period, which is one month for monthly filers and one quarter for quarterly filers. If no action is taken by the end of that window, it is treated as accepted.
Declaring the ITC reversal amount. When accepting a credit note, you can indicate whether the ITC to be reduced is the full amount, a partial amount or nil, for example where you had never claimed ITC on the original invoice. A remark is required when declaring partial or nil reversal. If no amount is declared, the system assumes full reversal.

These changes let recipients match reversals to their actual ITC position rather than relying on a default.

A monthly IMS routine that works

Weekly, review new records. Download the IMS data and match it with your purchase register. Most records can be accepted in bulk once matched.
Flag exceptions early. For unmatched records, contact the supplier before the month closes.
Before the 14th, make sure all actions for the month are complete, so that GSTR-2B reflects your decisions.
After GSTR-2B generation, check the summary. If you change any action, recompute GSTR-2B before filing GSTR-3B.
Review pending items monthly, and move them to accept or reject as the facts become clear.
Keep a short log of rejections and reasons, useful in the event of a later query or a GSTR-2B reconciliation difference.

Common mistakes to avoid

Rejecting instead of keeping pending. A valid invoice that is simply early should normally be kept pending, not rejected.
Relying on deemed acceptance without review. It is convenient, but incorrect invoices will then flow into GSTR-2B.
Accepting blocked credits and claiming them. Items covered by section 17(5) may appear in IMS; accepting them for record purposes is fine, but they must not be claimed as ITC.
Ignoring the supplier side. If you are a supplier, check whether customers have rejected your invoices or credit notes, and correct them in your next return.
Forgetting to recompute GSTR-2B after changing actions.

Frequently asked questions

Is it mandatory to take action in IMS?

No. If no action is taken, records are treated as accepted when GSTR-2B is generated. However, reviewing records is strongly advisable so that only correct invoices reach your GSTR-2B.

Can I change an action after GSTR-2B is generated?

Yes, until you file GSTR-3B for that period. After changing actions, recompute GSTR-2B so that the updated figures flow into GSTR-3B.

How long can a credit note be kept pending?

For records from the October 2025 tax period onwards, a credit note can be kept pending for one tax period: one month for monthly filers or one quarter for quarterly filers.

Does accepting an invoice in IMS guarantee my ITC?

No. Acceptance places the record in GSTR-2B, but the conditions of the GST law, such as receipt of supply, payment and the time limit, must still be met.

If you would like help setting up an efficient IMS review and ITC reconciliation routine for your team, we would be glad to support you.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 3, 2026

GST 2.0 One Year On: The 5%, 18% and 40% Rate Structure and What Businesses Should Re-check

It has now been a year since the GST 2.0 rates took effect on 22 September 2025. Following the 56th GST Council meeting on 3 September 2025, the old four-slab structure of 5%, 12%, 18% and 28% gave way to two main rates of 5% and 18%, with a special rate of 40% for a small list of luxury and sin goods.

Most businesses made the switch quickly, updating item masters and prices within days. One year on, it is a good moment to look back calmly and check that everything is still set up correctly. Small errors made in the rush of September 2025, such as a wrong HSN rate or an unclaimed refund, can quietly continue for months. This article summarises the structure and offers a practical re-check list.

Key takeaways

GST 2.0 rates of 5%, 18% and 40% have applied since 22 September 2025, with 0% continuing for exempt and essential items.
Compensation cess was withdrawn on most goods from 22 September 2025; for tobacco products, the move to the new structure was completed from 1 February 2026.
Item masters, HSN codes and billing software should be reviewed against the current rate notifications, not last year’s quick fixes.
Businesses whose input rates are now higher than output rates should consider inverted duty refunds.
Credit notes, price revisions and contracts spanning the change date deserve a second look before annual returns are prepared.

GST 2.0 rates at a glance

Rate	Broad coverage	Examples
0% (Nil)	Essential and exempt supplies	Many fresh foods, individual life and health insurance premiums
5%	Merit and common-use items	Many packaged foods, several daily-use goods, certain services such as budget hotel stays
18%	Standard rate for most goods and services	Most manufactured goods, professional and business services
40%	Luxury and sin goods	Tobacco products, pan masala, larger motor vehicles, aerated sugary beverages

Specific rates always depend on the HSN or SAC code and the conditions in the notification. Some services at 5% are available only without input tax credit, so the rate alone does not tell the full story.

What changed alongside the GST 2.0 rates

The reform was more than a rate cut. Key changes included:

Removal of the 12% and 28% slabs, with most items moving down to 5% or 18%.
Withdrawal of compensation cess on most goods, including automobiles, simplifying invoicing for many sectors.
Exemption for individual life and health insurance, which reduced costs for policyholders.
A special 40% rate for a defined list of goods, with the transition for tobacco products completed from 1 February 2026.
Process reforms announced at the same time, including faster provisional refunds and simpler registration, which continue to be rolled out.

Why a one-year re-check makes sense

In September 2025, many businesses had just a few weeks to reprice goods, reconfigure software and brief teams. Understandably, some changes were made quickly. Since then, the annual cycle has turned: GSTR-9 for FY 2025-26 will cover both the old and new rate periods, and any mismatch between books, GSTR-1 and GSTR-3B will show up. The upcoming 57th GST Council meeting may also bring further clarifications. Checking now keeps your records clean before that.

GST 2.0 business checklist

1. Item master and HSN mapping

Export your item master and compare each HSN code and rate with the current rate schedule.
Look out for items that were mapped to a generic HSN and may have moved to a different rate.
Confirm that e-invoice and e-way bill configurations use the same rates as your billing software.

2. Invoices spanning 22 September 2025

Review supplies where the invoice, payment and delivery fell on different sides of the change date. The time of supply rules for a change in rate decide which rate applies.
Check advances received before the change and invoiced after it.

3. Credit notes and price revisions

Where prices were revised after the change, confirm that credit notes were issued correctly and reported in GSTR-1.
Ensure your customers have accepted or reflected the credit notes, particularly in the Invoice Management System.

4. Input tax credit

Where your output supplies moved to a 5% rate without credit, confirm that ITC is no longer being claimed on related inputs.
Check that ITC relating to exempt supplies, such as newly exempt insurance, is reversed as required.
Reconcile ITC in books with GSTR-2B for the full year.

5. Inverted duty structure

If your inputs are now taxed at 18% and your output at 5%, you may accumulate credit. Examine eligibility for a refund of unutilised ITC and prepare the working.

6. Contracts and pricing

Long-term contracts often state prices “inclusive of GST” or refer to a specific rate. Update them so that the tax clause reflects the current position.
Make sure the benefit of rate reductions has been passed on appropriately in your pricing policy, as this is a question customers and authorities may ask.

7. Records for the annual return

Keep a short note documenting the rate changes made, the dates and the notifications followed. This makes GSTR-9 and any later query far easier to handle.

Common issues we have seen in the first year

Old rates left in rarely used items, which surface only when that item is finally billed.
Composite supplies where the principal supply changed rate and the bundle was not revisited.
Unclaimed refunds in inverted duty cases, where businesses simply carried forward the credit.
Missing credit notes for post-change price reductions, leading to mismatches in customers’ ITC.
Services at 5% without ITC where credit continued to be claimed on inputs.

None of these is difficult to fix if caught early. A focused review of a few hours can often settle the whole year.

Frequently asked questions

What are the GST 2.0 rates?

The main rates are 5% and 18%, with a special rate of 40% for select luxury and sin goods. Exempt and nil-rated supplies continue at 0%. These rates apply from 22 September 2025.

Are the 12% and 28% GST slabs still in use?

No. Items earlier taxed at 12% or 28% were moved to other rates under GST 2.0, mostly to 5% or 18%, and some to 40%.

Is compensation cess still charged?

Compensation cess was withdrawn on most goods from 22 September 2025. Tobacco products moved to the new structure from 1 February 2026. Check the current notifications for any specific product.

Should I review my GST setup even if nothing seems wrong?

Yes. A one-year review of item masters, credit notes and ITC is a simple way to make sure the annual return reconciles and that refunds are not left unclaimed.

If you would like a quick review of your GST rates, ITC and refunds one year after GST 2.0, our team is happy to help.

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This article is general information based on the law as of September 2026, and is not legal or tax advice. Please check the facts of your own case with a professional before acting.

October 2, 2026