New ITC & Invoice Matching Rules under GST – Effective 1st October 2025

The GST framework in India is undergoing significant changes from 1st October 2025, particularly in the area of Input Tax Credit (ITC). Businesses, tax consultants, and accountants need to update their compliance processes to avoid credit mismatches and potential penalties.

Below is a detailed explanation of the new ITC rules, their impact, and practical compliance steps.

🔸 1. ITC Allowed Only for Accepted & Reflected Invoices in GSTR-2B

From 1st October 2025, taxpayers will be eligible to claim Input Tax Credit only for those invoices that are accepted by the recipient and are reflected in their GSTR-2B.

This means:

• Merely having a tax invoice is not enough to claim ITC.

• The invoice must be uploaded by the supplier in their GSTR-1.

• It should then auto-populate in the recipient’s GSTR-2B.

• The recipient must “accept” the invoice for the credit to be valid.

✅ Practical Impact:
Businesses must regularly reconcile their purchase register with GSTR-2B. Any invoice not reflected or accepted will be ineligible for ITC in that period.

🔸 2. Mandatory ITC Reversal on Credit Notes by Recipient

Under the amended rules, if a supplier issues a credit note, the recipient (if registered) must first reverse the ITC claimed on the original invoice before the supplier can reduce their output tax liability.

This sequence ensures that both supplier and recipient maintain consistency in their tax records.

📌 Example:

• Suppose Supplier A issued an invoice of ₹1,00,000 + GST ₹18,000 in April 2025.

• Recipient B claimed ₹18,000 as ITC.

• In October 2025, Supplier A issued a credit note for ₹20,000 + GST ₹3,600.

• Before Supplier A can adjust this ₹3,600 in their GST return, Recipient B must reverse the corresponding ITC of ₹3,600.

✅ Practical Impact:
Accounts teams must track credit notes carefully and ensure timely reversal of ITC. Failure to do so may block the supplier’s liability adjustment and cause reconciliation issues.

🔸 3. Rejected Invoices Not Eligible for ITC

Invoices that are rejected by the recipient in GSTR-2B will not be eligible for ITC. This is a reinforcement of existing practice but will now have stricter enforcement from October 2025.

Common reasons for rejection include:

• Wrong GSTIN or invoice details

• Duplicate invoices

• Invoices issued for incorrect periods

• Disputes between supplier and recipient

✅ Practical Impact:
Rejection should be used carefully and only for genuine errors. A rejected invoice means the recipient forfeits ITC unless the supplier re-uploads a corrected invoice.

📝 Key Compliance Steps for Businesses

To stay compliant with the new ITC rules, businesses should:

1. Strengthen invoice reconciliation between purchase data and GSTR-2B every month.

2. Establish internal controls for credit note tracking and timely ITC reversal.

3. Train vendors and accounts teams on the importance of correct invoice uploading.

4. Use automated GST tools or ERP integration to reduce manual errors.

5. Regularly review GSTR-2B to accept or reject invoices promptly.

📌 Conclusion

The new ITC rules aim to make the GST system cleaner, reduce fraudulent credit claims, and align supplier-recipient records more accurately. While this improves the robustness of the tax system, it also places a higher compliance responsibility on businesses.

Early preparation — through timely reconciliation, automation, and vendor coordination — will help businesses adapt smoothly to these changes from 1st October 2025.