In a significant move aimed at tightening compliance under the Goods and Services Tax (GST) framework, the Ministry of Finance is preparing to introduce a two-stage reform that will substantially limit manual changes in the monthly GSTR-3B return. The initiative is designed to curb the rampant misuse of input tax credit (ITC), a problem that has cost the exchequer more than ₹2 lakh crore since GST was launched seven years ago.
According to officials familiar with the ongoing deliberations, the Revenue Department is finalising a new system-driven architecture where key fields of GSTR-3B will be locked and auto-populated. This proposal has been under discussion for several years but is now being fast-tracked.
Two-Phase Rollout Planned
Sources indicate that the reform will be implemented in two phases:
Phase 1 – April 2026:
Taxpayers will no longer be able to modify the outward-tax details reported in GSTR-3B. The system will automatically pull this data from GSTR-1, thereby eliminating discrepancies that arise between the two returns.
Phase 2 – July 2026:
Input tax credit entries in GSTR-3B will also be auto-populated—this time from GSTR-2B—and the option to manually enter or alter ITC will be removed. This is expected to strike at the root of fake credit claims created through paper transactions or non-existent vendors.
Officials suggest that both phases of the reform should be fully operational by July 2026.
Industry Experts Caution Against Compliance Burden on Genuine Taxpayers
While experts acknowledge the need for stronger guardrails to prevent fraudulent ITC claims, they warn that a rigid, system-driven GSTR-3B could pose challenges for honest businesses.
Abhishek A. Rastogi, founder of Rastogi Chambers, noted that certain sectors naturally rely heavily on input credit due to their cost structures. “Even a temporary denial of ITC—because of mismatches, supplier delays, or system glitches—can severely strain working capital. The transition has to be sensitive to these realities,” he said.
He emphasised that auto-population of both outward tax and ITC will enhance transparency, but only if the supporting technological infrastructure functions reliably. Any lag or mismatch could inadvertently penalise taxpayers who have complied with all legal requirements.
Echoing this view, Sonam Chandwani, Managing Partner at KS Legal and Associates, said the shift represents a major evolution in GST compliance. However, she cautioned that “freezing edits in GSTR-3B without providing a robust mechanism for corrections could increase litigation.” She stressed the need for stronger supplier-side monitoring to ensure that genuine recipients are not deprived of legitimate credit due to the default of vendors.
Auto-Populated 3B: A Reform Long in the Making
Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat LLP, noted that the government has been exploring the idea of hard-locking GSTR-3B for several years.
“A similar mechanism was originally planned for implementation in the January 2025 return cycle but was put on hold after traders pointed out practical issues,” Mishra said. “The GSTN advisory issued later for the July 2025 cycle clearly indicated the administration’s intention to eventually adopt a system-driven return process.”
He added that the new approach aligns with the government’s larger objective of reducing manual intervention, improving data integrity, and ensuring accuracy at each stage of the reporting workflow.
“If executed properly, this could significantly reduce disputes, streamline compliance, and move India closer to a fully automated GST reporting ecosystem,” he added.
Next Steps
The issue of fake ITC was also raised at the most recent GST Council meeting, signalling strong political backing for the reform. A formal proposal on the revised GSTR-3B structure is expected to be taken up for discussion in an upcoming Council session.
As of publication, the Finance Ministry has not officially responded to queries on the new compliance framework.
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