Govt may grant 2 months window for ITC on Credit Notes:

Govt may grant 2 months window for ITC on Credit Notes In a big relief to goods and services tax (GST) payers, the government is expected to change the Central GST (CGST) Rules, giving recipients of goods and services up to two months to accept or reject a credit note and adjust the input tax credit. Currently, taxpayers who use the Invoice Management System (IMS) must accept or reject credit notes outright. The measure will provide taxpayers with more flexibility while avoiding a financial hardship. In the event of sales returns, discounts, or overbilling, the seller will issue a credit note to the customer to lower the amount owed or to be used for future payments. The IMS is an automated system that tracks and verifies invoices produced by businesses to assist them in claiming ITC. The Centre launched out the system in October of last year. "The recipient of goods and services can now hold the credit note outstanding for one tax period (one month, as GST returns are made monthly). However, if one misses filing the tax return on time, one will get a month more to retain the credit note in pending mode, but no more," an official added. The IMS is currently optional; however, the majority of significant GST payers use it. According to the official, the proposed action is a step towards making the IMS mandatory in due time. The amendments to the CGST Rules are necessary because the Finance Bill, 2025, proposes amending the CGST Act to require suppliers to ensure the reversal of ITC obtained by recipients to decrease their own (suppliers') tax liability. An expert said that the 15 million GST taxpayers, large and small, have been affected because credit notes are the most important feature of IMS. Every change in tax law comes with a catch. In this scenario, if the recipient keeps the credit note outstanding and then accepts it in the next tax period, one will be required to pay interest for a month. This would be a dampener, and business must prepare properly.