Submission for Expert Opinion on Rectification of Incorrect ITC Reporting

Recommended treatment: Report CGST Rs. 99,986 and SGST Rs. 99,986 in Table 4(B)(2) of the August 2026 GSTR-3B.

This is preferable to both alternatives proposed. Table 4(B)(2) is appropriate for reversal of ITC inadvertently availed in an earlier period due to an error. Table 4(B)(1) is intended for permanent/non-reclaimable reversals and therefore is not the appropriate classification for this correction.

A negative figure in Table 4(A)(5) should not be created merely to neutralise the July 2026 error. The August return should report the actual eligible ITC for August, while the earlier erroneous availment should be separately corrected through 4(B)(2).

Interest and penalty

On the stated facts, interest should not arise if the disputed ITC was never utilised for payment of output tax. This should be demonstrated through a period-wise Electronic Credit Ledger reconciliation establishing that sufficient credit remained available and the disputed Rs. 99,986 CGST and Rs. 99,986 SGST were never utilised.

If any portion was actually utilised, interest exposure should be examined to that extent.

No automatic penalty should arise merely because an inadvertent reporting error is voluntarily corrected, particularly where there is no fraud, wilful misstatement, suppression or revenue loss.

Documentation

Maintain:

• Credit-note-wise GSTR-2B/GSTR-3B reconciliation;
• computation of correct net ITC;
• July 2026 and August 2026 GSTR-3B workings;
• Electronic Credit Reversal/Reclaimed Statement reconciliation;
• period-wise Electronic Credit Ledger movement proving non-utilisation;
• relevant GSTN advisory/Circular;
• management note documenting the error, identification, correction and interest/penalty assessment.

Final position:

August 2026 Table 4(B)(2): CGST Rs. 99,986 + SGST Rs. 99,986.

Avoid 4(B)(1) and avoid an artificial negative 4(A)(5) solely for rectifying the July error.

Yes - that changes the issue materially.

The Rs. 99,986 CGST + Rs. 99,986 SGST is not a fresh ITC reversal issue. It was already reversed through 4(B)(2), then reclaimed in July 2026 through 4(A)(5) and 4(D)(1) pursuant to the prescribed mechanism. The August question is therefore how to nullify the additional ECL created by that July reclaim.

Correct approach

I would not again put Rs. 99,986 + Rs. 99,986 in 4(B)(2) merely to bring down the ECL. That would duplicate the earlier reversal/reclaim cycle.

The objective in August is to reverse the erroneous July availment. Since GSTR-3B cannot be revised, the correction has to be reflected through the subsequent return mechanism. Where the correction is to reduce ITC actually standing in the ledger, the appropriate reporting should be against ITC in Table 4(A)(5), subject to the portal permitting the required negative/net adjustment.

However, a negative 4(A)(5) should not be manually entered merely on the assumption that the portal will accept it. The current GSTN functionality and the relevant advisory need to be checked specifically for August 2026.

If the portal does not permit a negative 4(A)(5), the safer position is not to use 4(B)(1) as a substitute, because 4(B)(1) characterises the amount as a permanent/non-reclaimable reversal. Instead, the correction should follow the GSTN-prescribed subsequent-period mechanism, with a complete reconciliation.

In substance

The accounting/electronic trail should be:

Earlier 4(B)(2) reversal July 2026 4(A)(5) + 4(D)(1) reclaim August 2026 correction of the resulting excess ECL.

Thus, 4(B)(2) should not be used again merely because the amount originated from an earlier 4(B)(2) reversal.

The critical distinction is between reversing ITC and nullifying an erroneous reclaim that has already increased the ECL.

Given that the disputed amount was never utilised, there should ordinarily be no interest consequence, provided the ECL reconciliation conclusively establishes non-utilisation.

I would therefore validate the exact August 2026 GSTN return functionality/advisory before filing, rather than mechanically adopting either Option A or B. The legal position and the portal-reporting mechanics need to be kept separate.

Dear Querist

This is a common issue being faced by all taxpayers. To comply with Notification 14/2022-Central Tax (Rate) read with Circular 170-2022-GST what is advised is to reavail the credit what was inadvertently reversed Table 4(B)(2) under Table 4(A)(5) and reverse the same under Table 4(B)(1). Please populate Table 4(D)(1) appropriately. Thereafter you may check the electronic credit reversal and reclaimed statement under tab - dashboard > services > ledger. If the said ledger balance stands nullified then nothing further need be done. Thanks

This is no complication in this. Please reverse the same in Table 4(B)(1) for permanently expunging ITC. Once this is done money will lapse to the respective state government.