Section 43 – Matching, reversal and reclaim of reduction in output tax liability
Section 43 of CGST Act, 2017 – Matching, Reversal and Reclaim of Reduction in Output Tax Liability
Updated on: February 2026 (as applicable till date)
Prepared by: Yours Tax Consultant
1. Introduction to Section 43
Section 43 was introduced to provide a system-based mechanism for matching reduction in output tax liability claimed by a supplier, mainly through:
- Credit notes
- Downward revision of taxable value or tax
This section was intended to work alongside Section 42.
2. Legislative Intent of Section 43
The objective of Section 43 was to:
- Ensure that reduction in output tax is genuine
- Prevent misuse of credit notes
- Link supplier’s reduction with recipient’s ITC reversal
Thus, any reduction in tax liability by supplier was to be matched with corresponding action by recipient.
3. Original Matching Mechanism (Conceptual)
As per the original design:
- Supplier declares credit note details
- System matches it with recipient’s ITC
- Mismatch is communicated
- Unresolved mismatch leads to reversal of reduction
Once corrected, reclaim was allowed.
4. Current Legal Status of Section 43
As on date:
- Section 43 remains in the CGST Act
- Its provisions are not operationalised
- No matching or reversal is carried out under this section
Therefore, Section 43 is kept in abeyance.
5. Dependency on Old Return System
Section 43 was designed to function with:
- GSTR-1 (supplier outward supplies)
- GSTR-2 (recipient inward supplies)
- GSTR-3 (monthly consolidated return)
Since GSTR-2 and GSTR-3 were suspended, the matching mechanism under Section 43 never became functional.
6. Present System for Credit Notes
Currently, reduction in output tax liability is governed by:
- Section 34 – Credit and debit notes
- Section 39 – Return filing
- GSTR-1 and GSTR-3B reporting
No automated matching under Section 43 is carried out.
7. Whether Section 43 is Enforced Today?
In practice:
- No notices are issued under Section 43
- No reversal of reduction is done under this section
- No reclaim procedure is followed under this section
Authorities rely on other provisions for compliance and recovery.
8. Relationship with Section 34
Section 34 governs:
- Issuance of credit notes
- Time limits for declaration
Section 43 was intended to:
- Verify correctness of tax reduction
Today, Section 34 alone governs credit note compliance.
9. Related Provisions
10. Practical Compliance Note
Suppliers should not rely on Section 43 for validation of credit notes. Compliance must be ensured strictly as per Section 34 and return filing provisions.
11. Professional Insight
Section 43 is another example of a well-intended provision that could not survive practical GST implementation. Knowing its non-applicability is as important as knowing its text.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and prevailing legal position as applicable till date. Future legislative changes may amend, revive or omit this provision.
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