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Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services. Under the GST regime, Input Tax Credit (ITC) is a crucial mechanism that allows businesses to claim credit for the taxes paid on their purchases of goods and services, which can be used to offset their tax liability on their output supplies. However, there may be instances when the reversal of input tax credit of GST is required.

In this article, we will discuss the rules and provisions related to the reversal of input tax credit of GST under the GST Act 2017.

What is the reversal of Input Tax Credit of GST?

The reversal of input tax credit of GST refers to the situation where a business needs to reverse the credit of the input tax that they have claimed earlier. It can happen due to various reasons such as the goods or services are used for non-business purposes, the goods or services are exempt supplies, the goods or services are used for making non-taxable supplies, or the inputs are not received within 180 days from the date of the invoice.

Rules and provisions related to the reversal of Input Tax Credit of GST

Rule 42 and Rule 43 of the CGST Rules, 2017

Rule 42 of the CGST Rules, 2017 deals with the reversal of input tax credit on account of non-payment of the supplier. As per the rule, if a taxpayer fails to pay the supplier within 180 days from the date of the invoice, the ITC availed earlier will be reversed, along with interest.

Rule 43 of the CGST Rules, 2017 deals with the reversal of input tax credit on account of exempt supplies. As per the rule, if a taxpayer makes exempt supplies, then the ITC availed earlier on inputs, input services, and capital goods used for such exempt supplies needs to be reversed.

Section 17 of the CGST Act, 2017

Section 17 of the CGST Act, 2017 deals with the apportionment of credit and blocked credits. As per the section, input tax credit is not available for certain goods and services, such as motor vehicles, goods and services used for personal consumption, and works contract services used for the construction of immovable property, among others.

Rule 44 of the CGST Rules, 2017

Rule 44 of the CGST Rules, 2017 deals with the reversal of input tax credit on account of non-taxable supplies. As per the rule, if a taxpayer makes non-taxable supplies, then the ITC availed earlier on inputs, input services, and capital goods used for such non-taxable supplies needs to be reversed.

Conclusion

In conclusion, the reversal of input tax credit of GST is an important provision under the GST Act 2017 that businesses need to comply with. It is essential for businesses to keep track of the reasons for reversal of input tax credit and ensure that they follow the rules and provisions related to it. This will not only help them avoid any penalties but also ensure that they maintain accurate records of their tax liability and compliance with the GST law.

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6 Comments

  1. Vasanthakumar A says:

    Sir, During December-2023, our bankers wrongly debited in our a/c as Commitment fees plus GST and during January-2024, credited (reversed) the Commitment fees only and not credited (reversed) the GST amount.

    This is correct ie not reversal of GST amount and kindly advice the further action.

    Thanks, Vasanthakumar A.

  2. RAMJI LAL MODI says:

    If ITC has to be reversed/ paid in pursuance of departmental audit/ demand ( due to non payment to supplier within 180 days), then also can it be reclaimed if subsequently payment made to supplier.
    If yes, the procedure to be followed for the same

  3. opjain02 says:

    Sir,
    It is the clear language of S.16(2), GST Act, which superdsedes S.16(4), based on two Supreme Court cases cited by me.
    CA Om Prakash Jain s/o J.K.Jain, Jaipur
    Tel:9414300730, 9462749040, 0141-3584043

  4. opjain02 says:

    Sir,
    How far the reversal of ITC u/s 16(4) is justified when late fees is paid on late filing of return u/s 47. In my view, no reversal of ITC is needed due to the following case laws of Supreme court; 1..(2021) 35 J.K.Jain’s GST & VR 167 : Skill Lotto Solutions Pvt. Ltd. v. Union of India (SC 2.. (2021) 35 J.K.Jain’s GST & VR 402 : Government of Kerala v. Mother Superior Adoration Convent (SC) refer my detailed article in the magazine (2023) 39 J.K.Jain’s GST & VR, {Page R-15-R-16.
    CA Om Prakash Jain s/o J.K.Jain, Jaipur

    1. GS says:

      Sir, Pls check the statement “Rule 42 of the CGST Rules, 2017 deals with the reversal of input tax credit on account of non-payment of the supplier”. This seems to incorrect. Rule 42 deals with reversal ITC on account of exempted supplies w.r.t input / input services. Rule 43 deals with reversal ITC on account of exempted supplies w.r.t capital goods.

    2. CA Rakesh Ishi says:

      The two Supreme Court cases referred to, Skill Lotto Solutions Pvt. Ltd. v. Union of India and Government of Kerala v. Mother Superior Adoration Convent, may have some relevance to the issue, but ultimately it would depend on the specific facts and circumstances of each case.

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