Adjustment of ITC on Assets at the time of Business Closure

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Deepak Rawat (Querist)
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09 April 2023 Hi Experts,
I was doing business as Proprietor for last 1 year and I had bought some assets for business like AC, Furniture etc. and I had availed ITC on purchase of the same.
Now I want to surrender my GSTIN. Thus, please guide on what Value of assets, I have to reverse gst? In other words, how to calculate value of fixed assets as on today for the purpose of reversal of ITC?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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06 July 2024 When surrendering your GST registration as a proprietor and needing to reverse Input Tax Credit (ITC) on fixed assets, here’s how you can approach it:

1. **Determine the ITC Availed:**
- Compile a list of all fixed assets (like AC, furniture, etc.) for which you have claimed ITC.
- Calculate the total ITC availed on these assets during your ownership as a proprietor.

2. **Adjustment of ITC:**
- As per GST rules, when you surrender your GST registration, you need to reverse the ITC attributable to assets that are on hand as of the date of deregistration.
- The ITC to be reversed should be calculated based on the fair market value of the assets at the time of deregistration.

3. **Fair Market Value Calculation:**
- Determine the fair market value of each asset as of the surrender date. This can be based on recent transactions or an independent valuation, especially if the assets have depreciated significantly or if they were second-hand purchases.
- If the assets are new and still in good condition, you might use the purchase cost as the fair market value.

4. **Reverse ITC Calculation:**
- Once you have the fair market value of each asset, calculate the proportionate ITC to be reversed based on the original ITC claimed.
- The reversal amount would typically be the proportion of ITC corresponding to the fair market value of the assets as of the surrender date.

5. **Documentation:**
- Maintain proper documentation of the calculation and the basis used for determining the fair market value of assets.
- Prepare a reconciliation statement showing the ITC reversal for each asset.

6. **Reporting and Filing:**
- Report the ITC reversal in your final GST return and provide details of the reversal in the relevant sections of the GST form for surrendering registration.
- Ensure compliance with any additional requirements specified by the GST authorities.

By following these steps, you can accurately determine and reverse the ITC related to fixed assets when surrendering your GST registration as a proprietor. If you have complex scenarios or need further clarification, consulting with a GST professional would be advisable to ensure compliance with GST regulations.

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