As FY 2024-25 ends, ensure a seamless transition to FY 2025-26 with these essential GST tasks.

I. Outward Supplies: Get Your Records in Order

• Reconcile GSTR 1 with GSTR 3B & GST Returns with Books of accounts and rectify any mismatches between books and filed returns.
• Reconciliation of “E-Invoice and E-way bills” generated with actual sales
• Check applicability of E-Invoice
• From February 2025, reporting 6-digit HSN codes via dropdown is mandatory, as manual entry is disabled. The HSN master description will auto-fill the “Description as per HSN Code” field.
• Ensure shipping bill details for the export of goods with payment of tax are correctly entered in GSTR-1 and transmitted to the ICEGATE portal for IGST refund claims.
• Ensure all credit/debit notes are issued and reported in GSTR-1
• Ensure tax liability against receipt of advances (services) and adjustment thereof to derive at unadjusted advances
• Ensure correct bifurcation of B2B and B2C transactions in GSTR-1
• In case of the export of goods/services without payment of tax, make sure to file application for LUT for FY 2025-26 on or before 31st March 2025.
• Check tax compliance on branch/stock transfers
• Ensure correct reporting of Taxable, Exempt, Non-GST and Nil-rated supplies
• Verify if any corrections/amendments in invoices or details are required

II. Input Tax Credit (ITC) & RCM

1.Reconciliation of Input Tax Credit (ITC) as per Books and GSTR 3B:

While filing GSTR-3B as per Circular 170 of CGST Act and claiming ITC recorded in books and matched with GSTR-2B, it is essential to verify any discrepancies at the year end, such as:

• ITC matched with GSTR 2B but missed to claim in GSTR-3B
• ITC reversed in Table of Permanent Reversal [4(B)(2)] instead of Temporary Reversal [4(B)(1)] in GSTR 3B
• RCM ITC wrongly reported in Regular ITC
• Interchange claims of SGST /CGST as IGST and vice versa, etc

Note: Any such correction/ claim shall be made up to the October month return filed by 30th November of the subsequent Financial Year or filing of annual return, whichever is earlier.

2. Other Important points to check under ITC are:

Note: Rule 37 – Check for ITC reversal required on account of non-payment to vendors within 180 days or reclaim of any ITC in respect of supplies for which payment has been made.

3. Reverse Charge Mechanism (RCM):

• Reconcile expenses attracting RCM with amounts reported in GSTR-3B and books.

• Ensure GST is paid on RCM basis for imports of goods/services.

• Claim eligible ITC in GSTR-3B by November 30th of the following financial year or before filing of the annual return, whichever is earlier.

• Ensure correct reporting, payment and claiming of RCM in GSTR-3B.

III. Rule 96A Compliance (Exports under LUT/Bond)

1. Goods must be exported within 3 months from the invoice date.

2. Payment for export of services must be received in convertible foreign exchange/INR (as per RBI) within 1 year [or the period allowed under FEMA (9 months), including extensions] from the invoice date.

3. Regularly review compliance for each invoice; ensure no defaults before Financial Year ends.

4. Refund Timeline-

• Refund applications must be filed within 2 years from the relevant date as per the act.

• It may be noted that it is a regular activity to ensure that the refund is claimed periodically.

However, we shall check the same at the end of FY to plug any gap and apply for refund without any default.

IV. Other Compliances

• If the conditions of Rule 86B are met, ensure that at least 1% of the total tax liability is paid in cash.
• Obtain declarations from vendors exceeding the prescribed aggregate turnover threshold but exempt from e-invoicing under clause (s) of Rule 46.
• Check for any GST TDS/TCS credit available on our GST Portal and claim the same after checking its authenticity from the books of accounts
• Ensure registered persons with turnover up to ₹5 Cr opt in/out of the QRMP Scheme on time for seamless tax compliance
• If opted for the Composition Scheme for FY 2025-26, ensure Form CMP-02 is filed by March 31, 2025.

Note:

1. Check whether the material sent for job work has been returned within the prescribed time limit (i.e. for Inputs – 1 year and for Capital goods – 3 years) and whether the same has been duly reported in ITC 04.

2. Ensure that goods sent on an approval basis are either returned within six months or sold with the issuance of a tax invoice to comply with regulations.

V. Credit Note Declaration Compliance

As per reference vide Circular No.-212/6/2024-GST-

Ensure that if the discount given by the supplier to a recipient through tax credit notes in a Financial Year exceeds ₹5,00,000/-, then the supplier must obtain a CA/CMA certificate from the recipient confirming ITC reversal.

If the discount given by the supplier to a recipient through tax credit notes in a Financial Year is up to ₹5,00,000, a self-declaration from the recipient is sufficient.

Note: To avoid a last-minute rush during assessments, it is advisable to maintain these documents for scrutiny, audit, or investigation.

VI. Input Service Distributor (ISD) Registration Requirement

(Effective from 01 April 2025)

Applicability

• Any office of a supplier of goods or services or both that receives tax invoices for input services on behalf of distinct persons under Section 25.
• It also includes invoices subject to reverse charge tax.

Mandatory Registration

• Entities meeting the above criteria must register as an ISD under GST.
• The ISD will distribute Input Tax Credit (ITC) in respect of such invoices to the respective recipients.

Action Required

• Identify such offices/ entities on or before 31st March 2025.
• Apply for ISD registration to comply with the new mandate.
• This ensures proper ITC distribution and compliance with GST laws.

VII. The Hotel Industry!

Two major notifications were issued on 16th January 2025, impacting GST compliance for hotels and restaurants from 1st April 2025. Key changes as per notification no. are as follows-

Notification No. 05/2025 – CT (Rate)

Introduction of the “Specified Premises” concept (Hotels with high-value accommodations).

Removal of the “Declared Tariff” concept (Earlier tariff-based taxation is removed).

Mandatory Opt-In/Opt-Out Declaration before 31st March 2025.

Notification No. 08/2025 – CT (Rate)

E-Commerce Operators (like Swiggy, Zomato) will no longer be liable to pay GST on restaurant services provided in “Specified Premises”.

GST liability will now shift to restaurant owners, and they must pay 18% GST with Input Tax Credit (ITC) benefits.

Note-

What are “Specified Premises”?

1. Any hotel or restaurant where room rent exceeded ₹7500 per day in the previous financial year.

2. Any new hotel registering as a Specified Premises must file an Opt-In form (Annexure VII, VIII, IX).

Revised GST Rates from 1st April 2025

• Standalone Restaurants (Not attached to any hotel) – 5% GST (No ITC)
• Restaurants in Specified Premises (₹7500+ per day hotel rooms – 18% GST (ITC allowed)
• Restaurants in hotels with room rent below ₹7500 per day – 5% GST (No ITC)

Important Notes:

• Hotels falling under “Specified Premises” must file Opt-In Declaration (Annexure VII) before 31st March 2025.
• New GST registrations must file Annexure VIII within 15 days of ARN generation.
• For opting out, hotels/restaurants must file Annexure IX
• Once an option is selected, it cannot be changed for the financial year unless an Opt-Out Declaration is filed.

Key Changes in Safe Harbour Rules as per the CBDT Notification

Executive Summary

SBC TP Update on the CBDT Amendments to Safe Harbour Rules vide Notification No. 21/2025 dated March 25, 2025.

1. The definition of core auto components under Rule 10TA has been expanded to encompass lithium-ion batteries for use in electric and hybrid electric vehicles.
2. The threshold limits under Rule 10TD for software development services, IT-enabled services (ITeS), Knowledge Process Outsourcing (KPO), Contract R&D in software development, and Contract R&D in generic pharmaceutical drugs have been increased from ₹200 crores to ₹300 crores.

The aforementioned amendments shall be applicable for the assessment years 2025-26 and 2026-27.

Summary of changes pre and post amendment

Definition and purpose of Input Service Distributor

Definition

As per Section 2(61) of CGST Act, 2017, “Input Service Distributor (ISD)” means an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax u/s 9(3) or 9(4), for or on behalf of distinct persons referred to in section 25, and liable to distribute the input tax credit in respect of such invoices in the manner provided in section 20.

Purpose of ISD

When a business entity has large share of common expenditure on services and the billing is made to a single location, the ITC available should not be wholly claimed by that centralised location as services are utilised by one or more distinct persons. So, it may take a separate registration as ISD to distribute the ITC to its distinct persons proportionately.

Background of ISD

Earlier, Taxpayers have an option to distribute common input services from third parties either through ISD or cross charge mechanisms.

But, Section 20(1) has been amended with effective from 1st April 2025 vide Notification No. 16/2024-CT dated 06.08.2024 making it mandatory to have registration under ISD for the entities having centralized offices where services are procured for or on behalf of distinct persons referred to in section 25.

Meaning of ISD and Cross Charge

1.Cross charge is a charge of tax on deemed supplies made by HO/centralized office to its distinct entities.

2.ISD is meant for distribution of common ITC on invoices received by HO/ centralized office among its distinct entities referred to in Section 25.

What are External and Internally Generated Services?

1.Common input services/ External services – Procuring input services (common to one or more distinct persons) from external/third party suppliers. (eg– audit services, legal services, Accounting software, Consultation services, Advertisement services, Bank charges, insurance, tele – communication services, Membership fee etc.)

2.Internally generated services – Activities performed by Head office as a whole benefitting its branches having separate GSTIN. (eg- Accounting services, IT services, CEO/CFO/CS/HR services)

Before 01st April 2025

After 01st April 2025

Any entity which has a centralized location receiving input services on behalf of its distinct persons is now required to obtain ISD registration. The Finance Bill removes the option previously available to taxpayers to choose between cross charge and ISD.

Note: Cross charge for internally generated services is not mandatory vide Circular 199/11/2023 – GST dated 17th July 2023. It clarified that in situations where no invoice is raised for ‘internally generated services’ the value can be deemed as NIL where the recipient is eligible to claim ITC.

Functions of ISD

Note:

• ISD mechanism cannot be used for transfer of credit to holding company, subsidiary company, group entities, related parties as they have different PAN.

• ISD can neither be a supplier nor recipient of goods/services.

Compliances by ISD

A. Forms/ Returns

• Every taxable person registered as an ISD shall, for every calendar month or part thereof, furnish GSTR 6, as prescribed under Rule 65, a return, electronically, within thirteen days after the end of such month on the basis of details contained in FORM GSTR-6A.

• Just like GSTR 2A, GSTR 6A is an auto-populated form based on GSTR 1 filed by the suppliers.

• Eg: For the month of February 2025, the date of filing GSTR 6 shall be 13th March 2025

• Late filing of GSTR-6 attracts a late fee of ₹100 per day u/s 47 of the CGST Act (₹50 per CGST & SGST each per day)

B. Documentation

1. Documents issued to ISD

Invoices issued by the supplier of services u/s 31 of CGST Act Debit Notes issued by supplier of services u/s 34 of CGST Act

Invoice issued as per Rule 54(1A)(a) to transfer ITC from regular registration located in the same state as ISD

2. Documents issued by ISD

ISD shall distribute the amount of tax credit to recipients by issuing an ISD invoice as per Rule 54(1).

Distribution of ITC (Rule 39)

A. Conditions/Restrictions for Distribution of ITC

• ISD can be used only for transfer of ITC pertaining to Input Services including activities listed in Schedule II of CGST Act as deemed services.

Note : ISD cannot avail and distribute ITC on goods/capital goods

• Amount of credit distributed should not exceed Amount of credit available.

• ITC should be distributed on monthly basis, i.e., ITC available for distribution in a month should be distributed in the same month.

• ISD shall distribute all the ITC received in GSTR 6A. Further, ISD should separately distribute eligible ITC and ineligible ITC. Reversal of Ineligible ITC shall be on part of the recipient.

• The excess/wrongly distributed credit can be recovered as per Section 21 from the recipients of credit along with interest by initiating action under section 73 /74 or 74A.

B. Manner of Allocation of ITC

C. Manner of Distribution of ITC

Note: the term “turnover”, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act reduced by amount of any duty or tax levied under specific entries of the Seventh Schedule to the Constitution of India.

Therefore, Turnover includes all taxable supplies, Zero – rated Supplies, Exempt Supplies and Non – Taxable Supplies but excludes any duty or tax levied.

D. Pro – rata distribution of ITC

ITC to be distributed to one of the recipients is to be calculated by applying the following formula:

C1= (T1/ T) x C

R1 = one of the recipients, whether registered or not

C1 = ITC to be distributed to R1

C = Total ITC available for distribution

T1 = Turnover of R1 during the relevant period

T = Aggregate Turnover during the relevant period of all recipients to whom the input service is attributable the term “relevant period” shall be—