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ITC REVERSAL FOR EXEMPTED GOODS

PANDIAN BRIGHT (TAX CONSULTANT) (316 Points)

20 February 2024

One of my Clients selling exempted goods under GST. for the past 6 months we forget to reverse the ITC. Now we want to know how to reverse ITC? Please Guide

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4 Replies

Money Money (383 Points)
Replied 21 February 2024

About GST and ITC reversal. 😊

If your client is selling exempted goods under GST, they are required to reverse the ITC on inputs, input services, and capital goods used for such supplies as per Section 17(2) of the CGST Act and Rule 42/43 of the CGST Rules1. The reversal of ITC should be done on a monthly basis in the GSTR-3B return by adding the amount of ITC to be reversed to the output tax liability and reducing the same from the eligible ITC2.

If your client has forgotten to reverse the ITC for the past 6 months, they should do so in the current month’s GSTR-3B by calculating the amount of ITC to be reversed for each month and adding them up. They should also pay interest on the delayed reversal of ITC at the rate of 18% per annum for the period from the due date of filing the return till the date of payment

PANDIAN BRIGHT (TAX CONSULTANT) (316 Points)
Replied 21 February 2024

Thank You for Reply Sir. If I Try to Reverse the ITC in current month 3B, It shows Negative balance in Net ITC Column.

Money Money (383 Points)
Replied 22 February 2024

As per the GST rules and regulations.

As per Rule 37A of CGST/SGST Rules, a buyer will have to reverse the ITC claims on taxes not deposited by their supplier by 30th September of the following year in which this ITC was claimed via the GSTR-3B form. This ITC reversal needs to be filed by 30th November, which follows the end of this financial year1.

However, if you have already claimed more ITC than available in a previous month, you may see a negative balance in the net ITC column of the current month. This means that you have to pay the excess ITC along with interest at the rate of 18% per annum2.

To avoid this situation, you should always verify the ITC available in your GSTR-2B before claiming it in your GSTR-3B. You should also reconcile the ITC claimed in your GSTR-3B with your books of accounts and purchase invoices. If you find any discrepancy or error, you should rectify it in the next month’s return3.

If you are selling exempted goods under GST, you may also have to reverse the ITC on the common inputs or input services used for both taxable and exempt supplies. The formula for calculating the ITC reversal on common inputs is as follows2:

Reverse ITC of input used for the personal purpose in a month = Common ITC X 5%

Reverse ITC of input used for the exempted supply in a month = Common ITC X (Exempted turnover / Total turnover)

The final ITC reversal for the financial year needs to be done by the end of September of the following year.

I hope this helps you understand how to reverse the ITC for past months and avoid negative balance in the net ITC column.