Reversal of Input. Compiled by:- CA Gaurav Goyal CA Varun Garg. Contact Us at:- Updated On 4 th Sep, 2017

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1 Reversal of Input Compiled by:- CA Gaurav Goyal CA Varun Garg Updated On 4 th Sep, 2017 Contact Us at:- info@gsttaxcorp.com 1

2 Legal Background The Central Goods and Service Tax Act, 2017 Section 17(1) Section 17(2) Section 18(4) Section 18(6) Making Non Business Supplies Making Exempt Supplies Opting for Composition or Taxable to Exempt suppliers Sales of Capital Asset within 5 years The Central Goods and Service Tax Rules, 2017 Rule 42 Rule 43 Rule 44 Reversal of ITC of Inputs/Input Services Reversal of ITC of Capital Goods Reversal of ITC in special case of 18(4), 18(6) & 29(5) 2 2

3 CGST RULES RULE 42 (Reversal of ITC on Inputs and Input Services) TOTAL ITC (Inputs and Input Services) Other Than Business Purpose Exempt Supply Blocked Credits Taxable Supply Common Credits C2 Will not be allowed T1 Will not be allowed T2 Will not be allowed T3 Completely Allowed T4 Note:- 1. Exercise will be Done at Invoice level 2. Exercise will be done for each type of GST in each state seperately. 1. Allocate Common Credits for Exempted Supply on the basis of turnover. (Exempt Turnover/ Turnover in State) D1 2. 5% adhoc disallowance of Common Credits D2 3. Balance will be allowed as Input 3

4 CGST RULES RULE 42 Contd (Reversal of ITC on Inputs and Input Services) D1 and D2 on annual Calculation Exceeds Monthly Total Less than Monthly Total Will be Payable till September of subsequent year, with interest from 1 st April. Will be claimed as Input in GSTR -2, till September of subsequent year. 4

5 CGST RULES RULE 42 Contd (Reversal of ITC on Inputs and Input Services) S N Particulars Amount Amount 1 Total Input (C) 10,00,000 2 Input in relation to Non Business Supply (T1) 1,00,000 3 Input in relation to Exempt Supply (T2) 1,00,000 4 Blocked Credits (T3) 50,000 2,50,000 5 C1 (C-T1-T2-T3) 7,50,000 6 Input in relation to Taxable Supply (T4) 6,00,000 7 Common Inputs C2 (C1-T4) 1,50,000 8 Disallow Common ITC for Exempt Supply (D1) (Exempt Supply/Total Supply in State) 9 Disallow Ad hoc 5% for Non Business Supply (D2) 1,50,000*5% 10 Available ITC out of Common Inputs C3=C2-(D1+D2) 5 20,000 7,500 27,500 1,23, Total Input Available (T4+C3) 7,23,500 Note:- At end of year Point No. 8 and 9 will be recalculated for the whole year and adjustment can be made till 20 th October of Next year.

6 CGST RULES RULE 43 (Reversal of ITC on Capital Goods) TOTAL ITC (Capital Goods) Other Than Business Purpose Exempt Supply Blocked Credits Taxable Supply Common Credits Will be identified at Invoice Level & Not be Credited to Electronic Credit ledger Credited to ECL 1. Will be Termed as A, 2. Credited to Electronic Credit Leddger, 3. Useful life of such asset will be taken 5 years from date of Invoice. 6

7 CGST RULES RULE 43 Contd.. (Reversal of ITC on Capital Goods) Asset used for Non Business Purpose or Exempted Supply Then also used for making Taxable Supply too 1. A will be calculated, 2. Credited to Electronic Credit Ledger, Note:- A will be calculated by reducing the Input Tax at 5% points for every quarter or part thereof. e.g. Assets was purchased on 01/07/2017 for Rs. 10,00,000/- on which Rs 1,80,000/- GST was levied. Asset was used for exempt supply and ITC of such amount was not claimed. On 01/11/2018 this asset was further used in making taxable supply also? What amount will be credited to ECL for such asset? Ans- Total number of months for which asset used is 16 months i.e. 6 quarter Total ITC 1,80,000/- Less 5% for each quarter 54,000/- Value of A 1,26 26, /- (However it cannot be credited to ECL because of Section 16(4)) )). Further if Depreciation is claimed on ITC, then also it cannot be trs to ECL as per section 16(3) of CGST Act,

8 CGST RULES RULE 43 Contd.. (Reversal of ITC on Capital Goods) S N Particulars Common Use Exempt to Taxable Taxable To Exempt 1 Total Input on Cap Goods as per Invoice 1,80,000 1,80,000 1,80,000 2 Value of A (Deemed) (Deemed) NA 1,26,000 90,000 3 Value of Tc (Common Credit credited to ECL) 1,80,000 1,26,000 0* 4 Value of Common Credits for Current Tax Period (Tm=Tc/60) for each asset 3,000 2,100 1,500 5 Total Common Credit Tr 6,600 6 Total Credit attributable to Exempted Supplies Te = Tr (E/F) 6,600 (Exempted Turnover/Total Turnover) * Because this credit is already credited to ECL, now it will be reversed because supply becomes exempt. 8

9 Other cases of Reversal of Input A Normal Registered person Opts Composition Scheme Taxable supply becomes exempt supply Sales of Capital Assets within 5 years Cancellation of Registration 9 9

10 CGST RULES RULE 44 (Reversal of ITC on Capital Goods) S N Input on Stock 1 Input will be calculated of stock lying as on particular date on the basis of Invoices (Proportionately). Input on Capital Goods Estimated life of Capital Goods will be 5 years. Pro-rata calculations will be made, taking the life as above. If Invoices are not available, then estimates will be made on the basis of prevailing market price. Which will be certified by CA or Cost Accountant. Details will be furnished in GST ITC 03. Calculations will be made for each head of Tax seperately. i.e. (CGST, SGST, UTGST, IGST) Inputs lying in ECL will lapse after debiting ECL (if any) 10

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