CIRCUMSTANCES WHICH REQUIRE ITC REVERSAL

AUTHOR :MASD & CO.

https://taxguru.in/goods-and-service-tax/circumstances-require-itc-reversal.html

Input tax credit (ITC) is the credit of GST, paid on procurement of goods or services, which can be utilised to
discharge the GST liability on outward supplies. If the input tax credit is wrongly claimed, then it should be
reversed by making payment to that extent of wrongly availed ITC. In certain situations, even if the basic
conditions for claiming ITC is satisfied, ITC claimed must be reversed (e.g. Blocked Credits like health
insurance, food & beverages expenses, etc.)

Reversal of ITC means the credit of inputs, input service, and capital goods utilized earlier would now be
reversed, effectively nullifying the credit claimed earlier. Depending upon when such a reversal is done,
payment of interest may also be required.

Relevant GST section/ rule Circumstances Manner of ITC reversal

The recipient fails to pay consideration to the

After 180 days from the date of iss
CGST Rule 37 supplier (whether fully or partly) for a
along with Interest
particular supply within 180 days
The supplier fails to pay tax through GSTR- On or before 30th November of the fo
CGST Rule 37A
3B by 30th September of the following year year.
Reversal of 50% of ITC by Banking and
CGST Rule 38 At the time of filing regular returns.
Other financial companies under special rules
On a periodic basis (monthly/yearly).
Inputs used to make an exempt supply or for
CGST Rule 42 manufacturing supplies which were partially Proportion of reversal shall be th
used for non-business or personal purposes exempt supplies to total Turnover

Input taken on Capital goods/Plant and ITC reversal to be done to the extent
CGST Rule 43 Machinery which were partially used for non- are used for Non business purpo
business or personal purposes purposes.
While filing form REG-16 under var
Cancellation of GST registration or switching
CGST Rule 44 the cancellation of GST registration o
to a composition scheme
while opting for a composition schem
ITC cannot be availed /Utilised at t
ITC on goods/services, details of which are
Section 16(2) of CGST Act,2017 GSTR-3B; otherwise, ITC needs to b
not furnished by the supplier in GSTR-1
applicable provisions of the law.
 Depreciation under the Income Tax Act has
Section 16(3) of CGST Act, Reversal is required at the time of
been claimed on the GST component of
2017 accounts for that financial year.
capital goods purchased
CGST Section 17(5) of CGST At the time of filing regular returns
ITC has been availed on ‘blocked credits.’
Act,2017 filing annual returns.
So these are the major situations, which require ITC reversal. To avoid all these circumstances, a proper periodic
review is to be done on a monthly/quarterly basis. Otherwise, on a year end, it will create a problem for
reconciliation as well as interest will be applicable.

Authors:

Bhavya Shah | Associate Consultant | Email: bhavya.shah@masd.co.in

Disha Shah | Associate Consultant | Email: disha.shah@masd.co.in