The Goods and Services Tax Network (GSTN) has enabled the ‘pending’ credit note feature which may trigger Input Tax Credit (ITC) confusion between suppliers and recipients.
The enhancement also enables taxpayers to modify Input Tax Credit (ITC) reversals upon acceptance of such credit notes, a move aimed at reducing business disputes and improving invoice-level reconciliation between suppliers and recipients.
According to the update, the “Pending” status will allow recipients additional time to verify credit notes before accepting or rejecting them, thereby providing operational flexibility in managing post-sales adjustments and ITC reversals.
However, tax experts have pointed out that the current implementation of the “Pending” option may lead to ambiguity in certain situations. Specifically, where ITC has not been availed from a supplier but a credit note is issued for post-sales discounts, the recipient faces a classification dilemma.
- Accepting the credit note could incorrectly trigger an ITC reversal that was never claimed.
- Rejecting it, on the other hand, might increase the supplier’s tax liability, creating compliance mismatches.
To mitigate such issues, experts suggest that the Invoice Matching System (IMS) should introduce three distinct categories to ensure clarity and consistency:
- Availed ITC – where credit has been taken and reversal is applicable;
- Not Availed ITC – where no credit has been claimed, hence no reversal should arise;
- Pending/Under Review – where verification or clarification is awaited.
Additionally, the term “rejection” has been criticized for implying a tax liability burden on the supplier even in genuine cases of non-availment. A more neutral terminology such as “not applicable” or “no credit claimed” could better reflect the commercial reality and avoid unwarranted tax mismatches between supplier and recipient returns.
