Top 10 Changes in GST & Income Tax Applicable from January 1, 2026

Important Tax Compliance Changes from 1 January 2026 – What Every Taxpayer Must Know

The commencement of 1 January 2026 brings significant compliance implications under GST and Income Tax laws in India. Multiple statutory deadlines expire on 31 December 2025, after which several system-driven restrictions, penalties, and consequences automatically come into force.

Failure to act before these cut-off dates may lead to late fees, interest liabilities, denial of Input Tax Credit (ITC), inoperative PAN, suspension of GST registration, and increased tax burden.

This article outlines the key changes effective from 1 January 2026, including several often overlooked but high-risk compliance areas.

1. GSTR-9 / GSTR-9C Due Date Expired – Late Fees Triggered

The last date to file GSTR-9 and GSTR-9C for FY 2024-25 is 31 December 2025.

From 1 January 2026, these returns can still be filed, but mandatory late fees will apply based on turnover slabs.

GSTR-9 Late Fee Structure (Applicable from FY 2022-23 onwards)

Annual Turnover Late Fee per Day (CGST + SGST) Maximum Late Fee
Up to ₹5 crore ₹50 (₹25 + ₹25) 0.04% of turnover
₹5 crore – ₹20 crore ₹100 (₹50 + ₹50) 0.04% of turnover
Above ₹20 crore ₹200 (₹100 + ₹100) 0.05% of turnover

Important Points:

  • Late fees continue to accumulate until the return is filed

  • No automatic waiver is available after the due date

  • GSTR-9C cannot be filed unless GSTR-9 is first filed

  • Late fee for GSTR-9C is ₹200 per day, capped at 0.05% of turnover

2. Belated and Revised ITR Filing Window Closes on 31 December 2025

For FY 2024-25 (AY 2025-26):

  • Belated Return under Section 139(4)

  • Revised Return under Section 139(5)

👉 Both are permitted only up to 31 December 2025.

From 1 January 2026, taxpayers will no longer be allowed to file either a belated or revised return for this financial year.

3. Updated Return Remains the Only Option – At a High Cost

Post 31 December 2025, the only return filing option available is the Updated Return under Section 139(8A).

Key Rules for Updated Returns

  • Can be filed up to 4 years from the end of the relevant assessment year

  • Allowed only in cases of:

    • Omitted income

    • Incorrect claims of exemptions, deductions, or losses

  • Refunds cannot be claimed

  • Losses cannot be carried forward

  • Additional tax payment is mandatory

📌 Updated returns are meant for tax recovery, not routine corrections.

4. PAN Becomes Inoperative If Aadhaar Is Not Linked

Failure to link PAN with Aadhaar results in the PAN becoming inoperative, leading to serious consequences.

Impact of Inoperative PAN

  • Income Tax Return cannot be filed

  • Tax refunds will not be issued

  • TDS will be deducted at higher rates

  • Certain banking transactions may be restricted

  • PAN becomes invalid for GST, investments, loans, and other financial compliance

    5. GSTR-3B Filing to Be Blocked Due to ITC Restrictions from 1 January 2026

    Starting with returns filed for January 2026 onwards, the GST portal will restrict GSTR-3B filing in certain ITC-related mismatch situations.

    ITC Reclaim Ledger Validation

    The amount of ITC reclaimed in Table 4(D)(1) must not exceed:

    • Closing balance of the ITC Reclaim Ledger, plus

    • ITC reversed in Table 4(B)(2) during the current tax period

    Reverse Charge (RCM) Ledger Validation

    ITC claimed under RCM in Table 4A(2) / 4A(3) must not exceed:

    • RCM tax paid and reported in Table 3.1(d), plus

    • Available balance in the RCM Ledger

    ❌ Any negative balance in the ITC or RCM ledger will automatically block GSTR-3B filing.

    6. Non-Submission of Bank Details Will Trigger GST Registration Suspension

    As per Rule 10A of the CGST Rules, furnishing bank account details is mandatory:

    • Within 30 days of GST registration, or

    • Before filing GSTR-1 or IFF, whichever occurs first

    Consequences of Non-Compliance

    • GST registration will be system-suspended

    • Taxpayer will be unable to file returns

    • E-way bill generation will be blocked

    • Suspension remains until bank details are updated

    7. GST Returns Older Than Three Years Become Non-Fileable

    A critical but frequently overlooked provision:

    👉 GST returns pending for more than 3 years become time-barred and cannot be filed.

    This restriction applies to:

    • GSTR-1

    • GSTR-3B

    • GSTR-4

    • GSTR-5, 6, 7, 8, and 9

    📌 Once a return becomes time-barred:

    • Related ITC is permanently forfeited

    • Annual return reconciliation becomes impossible

    • Departmental notices and demand proceedings may follow

    8. Reassess Aggregate Annual Turnover (AATO) – GST Registration May Be Required

    At the beginning of a new financial cycle, businesses should recalculate their Aggregate Annual Turnover (AATO).

    GST registration becomes mandatory if AATO exceeds:

    • ₹20 lakh (₹10 lakh for special category states), or

    • ₹40 lakh for goods suppliers, subject to prescribed conditions

    Failure to register can result in:

    • Tax demand along with interest

    • Monetary penalties

    • Denial of ITC to customers, affecting business credibility

    9. Pay Advance Tax by 15 March to Avoid Interest Liability

    Where total tax liability exceeds ₹10,000, payment of advance tax is compulsory.

    • Final instalment due: 15 March (100% of tax liability)

    Non-payment or short payment may attract:

    • Interest under Sections 234B and 234C

    • Additional tax cost even if the ITR is filed within the due date

    10. Regular Monitoring of Income Tax Portal Is Essential

    Taxpayers must frequently review communications available on the Income Tax Portal, including:

    • E-proceedings and notices

    • Intimations under Section 143(1)

    • Defective return alerts

    • Refund adjustments

    • AIS/TIS mismatch communications

    Ignoring portal notices may lead to:

    • Best judgment assessments

    • Withholding of refunds

    • Penalty and prosecution proceedings

GST Authorities Notify Revised Advisory on ITC Blocking in GSTR-3B

Background of the Advisory

To improve discipline in Input Tax Credit (ITC), minimise manual mistakes, and enable accurate tracking of ITC reversals, reclaims, and Reverse Charge Mechanism (RCM) credits, GSTN has introduced two dedicated electronic statements on the GST portal:

  • Electronic Credit Reversal and Re-claimed Statement (ITC Reclaim Ledger)

  • RCM Liability / ITC Statement (RCM Ledger)

Initially, these statements were only informational and displayed warning messages. However, GSTN has now decided to enforce strict system-based validations, under which GSTR-3B filing will be blocked if excess ITC is claimed or ledger balances turn negative.

This advisory is particularly critical for regular GST taxpayers, especially those involved in:

  • ITC reversals under Rules 37, 42, and 43

  • Temporary ITC reversals followed by re-claims

  • Transactions covered under Reverse Charge Mechanism (RCM)

1. Electronic Credit Reversal & Re-claimed Statement (ITC Reclaim Ledger)

Introduction & Applicability

This ledger has been implemented from:

  • August 2023 for monthly filers

  • July–September 2023 quarter for QRMP taxpayers

Objective

Its main purpose is to monitor ITC that is reversed temporarily and subsequently reclaimed, ensuring proper linkage between the two.

Details Captured

The statement records:

  • ITC reversed in Table 4(B)(2) of GSTR-3B

  • ITC reclaimed through:

    • Table 4(A)(5)

    • Table 4(D)(1)

This mechanism ensures that only ITC previously reversed can be reclaimed.

Navigation Path

Dashboard → Services → Ledger → Electronic Credit Reversal and Re-claimed Statement

2. Current System Behaviour (Till Now)

At present:

  • If reclaimed ITC exceeds the available reversed balance,
    👉 the system only displays a warning message

  • GSTR-3B filing is still permitted

GSTN observed that many taxpayers ignored these alerts, which resulted in:

  • Negative balances in ledgers

  • Excess utilisation of ITC

  • Increased scrutiny, disputes, and notices later

3. RCM Liability / ITC Statement (RCM Ledger)

Introduction & Applicability

This ledger became operational from:

  • August 2024 for monthly filers

  • July–September 2024 quarter for QRMP taxpayers

Purpose

It ensures that:

  • RCM tax liability is properly discharged

  • ITC under RCM is claimed only after payment

Information Tracked

The statement captures:

  • RCM liability reported in Table 3.1(d) of GSTR-3B

  • Corresponding ITC claimed in:

    • Table 4(A)(2) – RCM on inward supplies

    • Table 4(A)(3) – RCM on import of services

Navigation Path

Services → Ledger → RCM Liability / ITC Statement

4. Opening Balance Facility – Relief Provided Earlier

GSTN had earlier allowed taxpayers multiple opportunities to:

  • Declare opening balances in both ledgers

  • Correct excess reversals or excess RCM ITC claimed earlier

  • Rectify historical mismatches before enforcement

This was offered as a one-time corrective measure to help taxpayers clean up past errors.

5. Key Upcoming Change – Mandatory System Validation

GSTN has now announced that shortly:

  • ❌ Negative ledger balances will not be allowed

  • ❌ Excess ITC claims will result in blocking of GSTR-3B filing

6. New Validation Rules – Explained Simply

A. Validation for ITC Re-claim (Table 4(D)(1))

ITC reclaimed in Table 4(D)(1) must not exceed:

Closing balance of ITC Reclaim Ledger
+
ITC reversed in Table 4(B)(2) of the same return

In simple terms:
You can reclaim ITC only if:

  • It was reversed earlier, or

  • It is being reversed again in the same tax period

B. Validation for RCM ITC Claim

RCM ITC claimed in Table 4(A)(2) and 4(A)(3) must not exceed:

RCM tax paid in Table 3.1(d) of the same period
+
Available balance in the RCM Ledger

In simple terms:
RCM ITC can be claimed only when:

  • The corresponding RCM tax is paid, or

  • Adequate balance is available in the RCM ledger

7. What If the Ledger Balance Is Already Negative?

A. Negative ITC Reclaim Ledger

A negative balance indicates that excess ITC was reclaimed in the past.

👉 Mandatory correction to file GSTR-3B:

  • Reverse the excess ITC in Table 4(B)(2)

    📌 When No ITC Is Available

    If sufficient ITC is not available for reversal:

    • The reversed amount will be automatically added to tax liability

    Illustration:

    • Closing balance: –₹10,000

    • ITC reversed in Table 4(B)(2): ₹10,000

    • If ITC is insufficient → the amount must be paid in cash as tax

    B. Negative RCM Ledger

    A negative balance in the RCM ledger indicates that RCM ITC has been claimed without corresponding tax payment.

    To successfully file GSTR-3B, the taxpayer must choose either of the following:

    1️⃣ Pay the pending RCM liability in Table 3.1(d)
    OR
    2️⃣ Reduce the RCM ITC claimed in Table 4(A)(2) / 4(A)(3)

    Illustration:

    • RCM Ledger balance: –₹5,000

    Options available:

    • Pay ₹5,000 as RCM tax
      OR

    • Reduce RCM ITC claim by ₹5,000

    8. Effect on GSTR-3B Filing – Practical Impact

    Once system validations are implemented:

    • ❌ GSTR-3B filing will be blocked if ledger balances are negative

    • ❌ Excess ITC re-claims or RCM ITC claims will not be permitted

    • ✔ Only accurate and reconciled ITC will be accepted

    This represents a clear transition from advisory-based compliance to strict enforcement.

    9. Important Takeaways for Taxpayers & Professionals

    ✔ Reclaim only ITC that was genuinely reversed earlier
    ✔ Claim RCM ITC only after ensuring tax payment
    ✔ Review ITC Reclaim Ledger and RCM Ledger regularly
    ✔ Rectify negative balances without delay
    ✔ Never ignore system warning messages
    ✔ Reconcile GSTR-3B figures with ledger balances every month

    10. Who Needs to Be Extra Vigilant?

    This advisory is particularly critical for:

    • Businesses facing delays in vendor payments

    • Taxpayers applying Rule 37 reversals

    • Entities availing provisional ITC

    • Businesses with high RCM exposure

    • Chartered Accountants and consultants managing multiple clients

    • Taxpayers who made manual ITC adjustments in earlier years

    Final Note

    This advisory signals a decisive move towards automated and system-driven ITC governance.
    Manual adjustments and post-compliance justifications are no longer sustainable.

    👉 Ledger balance now determines return filing eligibility.

    Taxpayers are strongly advised to immediately review their ITC Reclaim Ledger and RCM Ledger and correct discrepancies before validations are enforced, to avoid return filing blocks, additional cash payments, and departmental notices.