GST Compliance Checklist for Financial Year 2025-26
Strategic Review & Action Plan for Businesses
As the new financial year 2025–26 begins, businesses must undertake a comprehensive introspection of their GST compliance framework. This includes both substantive law changes and procedural reforms. With several amendments becoming effective from April 1, 2025, aligning internal policies and operations with updated regulations is crucial.
Key Legal Updates Under GST
Major Statutory Amendments – What’s New This Year?
One of the most significant changes is the amendment to the definition of Input Service Distributor (ISD) under Section 2(61) of the CGST Act. ISD is now restricted to distributing Input Tax Credit (ITC) only for input services and not goods. It specifically pertains to an office of the supplier receiving invoices for input services on behalf of distinct persons and distributing the credit as per Section 20.
Cross Charge vs. ISD – Know the Difference
While ISD pertains to input service credit distribution, cross charging refers to the taxable supply between distinct persons (same PAN, different GSTINs) under Schedule I of the CGST Act, even if done without consideration. Cross charge is applicable to both goods and services, while ISD applies only to services. Correct classification is key to avoiding litigation.
Reviewing Contracts – A GST-Focused Approach
Businesses should revisit vendor and customer agreements during renewals in April 2025. Contracts must reflect the updated GST provisions, such as tax liability clauses, ITC eligibility, indemnity terms, invoicing structure, and dispute resolution mechanisms.
Procedural Compliance – Start the Year Right
E-Invoicing – New Thresholds, Broader Applicability
E-invoicing under Rule 48(4) is now mandatory for registered persons whose aggregate turnover exceeds ₹5 crore in any financial year since 2017–18. It applies to B2B and export supplies. Exemptions continue for SEZs, banks, insurers, and others as specified.
GTA Compliance – Opting for Forward Charge
Goods Transport Agencies (GTA) opting for Forward Charge Mechanism (FCM) must file Annexure V between January 1 and March 31 of the preceding year. For FY 2025–26, this means the declaration must be filed by March 31, 2025. Once opted, the FCM continues unless Annexure VI is filed within the same time frame to switch back to Reverse Charge Mechanism (RCM).
Exporters & SEZ Units – File LUT Before Supply
To export goods or services without IGST payment, businesses must furnish a Letter of Undertaking (LUT) in Form RFD-11 on the GST portal before April 1, 2025. This eliminates the need for IGST upfront payment and enhances cash flow. Only those not prosecuted for tax evasion above ₹2.5 crore are eligible.
Composition Scheme – Enroll Before March 31
Eligible small businesses intending to opt for the Composition Scheme must file CMP-02 by March 31, 2025. Eligibility includes turnover limits and the nature of supplies. Inter-state supplies and certain services are excluded. Non-compliance or late filing disqualifies the entity from availing composition benefits.
Start-of-Year Operational Tasks
Invoice Numbering – Plan New Series in Advance
Every new financial year requires a fresh invoice series. Businesses must also ensure that e-invoicing compliance is met for the applicable turnover category. Vendors must be informed of changes if required.
HSN Code Compliance – Avoid Misclassification
Under Notification No. 78/2020, HSN code requirements vary:
4-digit for turnover up to ₹5 crore
6-digit for turnover exceeding ₹5 crore Accurate HSN reporting is essential to avoid audit flags and penalties.
Dynamic QR Code – Mandatory for Large B2C Suppliers
Businesses with aggregate turnover exceeding ₹500 crore must include a Dynamic QR Code on B2C invoices. This aids in digital payments and ensures better audit trails. Non-compliance can attract penalties.
Reconciliation – Your Monthly Internal Audit
Output Reconciliation – Catch Discrepancies Early
GSTR-1 vs. GSTR-3B: Ensure consistency between reported outward supplies and tax liability.
E-Way Bill vs. GSTR-1: Align dispatch data with tax filings.
E-Invoice vs. GSTR-1 vs. Books: Reconcile for consistent and accurate reporting.
Input Tax Credit – Claim What’s Yours, Correctly
Books vs. GSTR-2A/2B vs. GSTR-3B: Match ITC entries to portal data.
Reversal of Ineligible Credit: Identify and reverse disqualified claims.
Electronic Credit Ledger vs. Books: Validate ledger balances with financial accounts.
Managing Refunds – Don’t Let Time Lapse
Refund applications under Section 54 must be filed within two years from the relevant date. Regular reconciliation can help identify eligible refund opportunities related to exports, inverted duty, or excess cash ledger balances.
Credit & Debit Notes – Timely Recording is Key
Businesses must issue and report credit/debit notes accurately in GSTR-1 and ensure the tax impact is correctly reflected in GSTR-3B. Section 34 of the CGST Act governs the timeline and adjustment rules for such documents.
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