Section for reversal of ITC

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This discussion clarifies the reversal of Input Tax Credit (ITC) when a business makes both taxable and exempt supplies. ITC on common inputs, including back-charges, must be reversed proportionally under Section 17(2) of the CGST Act, read with Rule 42. If ITC was wrongly availed due to an incorrect bill in GSTR-2B, it needs reversal under Section 16(2) as eligibility conditions weren't met. Interest may apply if the ITC was already utilized.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)

02 December 2025 In case we are making both taxable and exempt supplies, whether the ITC on back-charges is required to be reversed under which Section ?

“If a wrong bill appears in GSTR-2B and ITC has been wrongly availed, whether the ITC is required to be reversed under Section?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

03 December 2025 Yes — when a registered person makes both taxable and exempt supplies, the Input Tax Credit (ITC) on common inputs/services (including back-charges) must be reversed proportionately under Section 17(2) of the CGST Act, read with Rule 42 of the CGST Rules

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

03 December 2025 If ITC is wrongly availed due to a wrong bill in GSTR-2B, it must be reversed under Section 16(2) of the CGST Act, since the basic eligibility conditions are not satisfied.
• If already utilized → reversal plus interest under Section 50.
• If only availed but not utilized → reversal required, but interest may not apply (as clarified in CBIC circulars and judicial rulings).

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