13 Feb 2026Budget 2026 introduced several amendments to the GST framework — some administrative, some substantive. The changes affect return filing frequency, ITC eligibility conditions, refund processing timelines, and the government's ability to monitor compliance in real time. Here is what businesses in Kerala need to know before the next return cycle.
1. Expanded Mandatory Monthly Return Filing
The QRMP (Quarterly Return Monthly Payment) scheme threshold has been revised downward. Businesses with aggregate annual turnover above ₹5 crore must now file GSTR-1 and GSTR-3B monthly.
Businesses under the revised threshold who have been filing quarterly may continue to do so, but must ensure their monthly IFF (Invoice Furnishing Facility) entries are complete and accurate — since ITC on the buyer side depends on what the supplier declares monthly.
Composition scheme dealers continue on simplified annual return (GSTR-4) with quarterly statements.
Practical impact: If your turnover is near the threshold, check whether you have crossed it in the preceding financial year and adjust your filing frequency accordingly. A mismatch between your intended frequency and the GST portal's computation will generate penalty notices.
2. Tighter ITC Matching — Rule 36(4) Tightened Further
ITC claims have always been subject to Rule 36(4), which limits provisional ITC to a percentage of invoices reflected in GSTR-2B. Budget 2026 removed the provisional ITC buffer entirely for certain categories.
The current position:
- ITC claim must match GSTR-2B exactly for invoices where the supplier has filed GSTR-1
- Provisional ITC (10% buffer) is eliminated for supplies from suppliers who have defaulted on GST payment for two consecutive return periods
- GSTR-2B auto-population is now the baseline — manually claimed ITC not in GSTR-2B will be subject to reversal notices
What this means practically: your purchase register must be reconciled with GSTR-2B before GSTR-3B is filed. Do not wait until the due date to discover that a supplier's GSTR-1 is missing.
3. AI-Based Mismatch Detection
The GST Department is now using AI and machine learning to cross-reference:
- GSTR-1 filed by suppliers vs ITC claimed in GSTR-3B by recipients
- E-invoices vs GSTR-1 entries (discrepancies flag automatically)
- GST filings vs income tax return data (particularly relevant for turnover figures)
- TDS/TCS data vs GST turnover declared
The system generates automated demand notices and DRC-01 intimations without manual intervention. Businesses receiving these notices now have a tighter response window.
Key safeguard: Your GSTR-1, GSTR-3B, and books of accounts must be fully reconciled. Rounding differences, amended invoices not captured in GSTR-1A, or credit notes not matched will be flagged.
4. E-Invoice Threshold Reduced
E-invoicing is now mandatory for businesses with aggregate turnover exceeding ₹5 crore. This extends the e-invoice requirement to a much wider set of businesses, particularly mid-sized manufacturers, traders, and service providers in Kerala.
All B2B invoices above ₹5 lakh for these businesses must be generated through the Invoice Registration Portal (IRP). Invoices not generated through IRP will not be eligible for ITC by the buyer and will be flagged in GSTR-2B reconciliation.
If you haven't registered on the IRP and are above the threshold, this should be your immediate priority.
5. GST Refund Processing — Faster, But More Documented
Refund timelines for exporters and inverted duty structure claimants have been expedited through automated verification. The documentation bar has risen simultaneously:
- Export refunds (LUT/RFD-01): System now auto-validates against ICEGATE customs data; refunds where shipping bills do not match GST invoice data are placed on hold automatically
- Inverted duty structure refunds: ITC claimed must match GSTR-2B precisely; disputed ITC will not be refunded until the underlying dispute is resolved
- Interest on delayed refunds: The statutory 60-day refund period under Section 54(7) now triggers automatic interest computation — businesses no longer need to file a separate claim for delayed refund interest
6. Penalties for Late Filing — Enhanced for Repeat Defaults
Late fees for GSTR-3B and GSTR-1 have been revised upward for repeat defaulters (more than two late filings in a financial year). The maximum late fee continues at ₹10,000 per return, but the daily minimum has been increased for taxpayers above the ₹5 crore turnover threshold.
Additionally, GSTIN suspension can now be triggered automatically — without requiring an officer's decision — after three consecutive months of default in GSTR-3B filing.
What Businesses Should Do Now
- Reconcile GSTR-2B with purchase register monthly — before filing GSTR-3B, not after
- Register on IRP if above ₹5 crore turnover and generating B2B invoices
- Check supplier compliance — a supplier who doesn't file GSTR-1 on time directly reduces your ITC eligibility and triggers system flags on your return
- Maintain clean books for the AI audit trail — your GST data is now compared against income tax return, TDS returns, and customs data automatically
- Apply for GST refunds promptly — don't let export refund claims age; the system is faster but documentation lapses cause automatic holds
For businesses in Kerala — particularly exporters, manufacturers, and traders with significant ITC positions — the Budget 2026 changes demand a more disciplined monthly compliance calendar than many were running previously.
Regi Tom Antony And Associates handles GST return filing, reconciliation, ITC audits, refund applications, and departmental notice responses for businesses across Kerala. Contact: letstalk@rtaandassociates.com | Kakkanad, Kochi.