Ineligible ITC of prev years (claimed in previous multiple years) accumulated to credit ledger
This query is : Resolved
Venkateshwarlu Pulluri
(Querist)
25 June 2025
Good morning sir/s,
ineligible ITC of prev years (claimed in previous multiple years) accumulated to credit ledger, shall it reversed in this year or to file DRC03
client is mess paying tax @ 5% without utilizing ITC but claimed in GSTR3Bs every month
Please guide me
ineligible ITC of prev years (claimed in previous multiple years) accumulated to credit ledger, shall it reversed in this year or to file DRC03
client is mess paying tax @ 5% without utilizing ITC but claimed in GSTR3Bs every month
Please guide me
12 August 2025
Key points:
Ineligible ITC must be reversed:
ITC which was wrongly claimed (ineligible) should be reversed along with interest under Section 16(2)(c) & Section 50 of CGST Act.
Even if the tax is paid without utilizing ITC, the credit shown in ledger for ineligible ITC needs to be reversed.
Method of reversal:
Method When to Use
Reversal in Current Return Adjust ITC reversal amount in Table 4(B) of current GSTR-3B under Tax payable on reverse charge or in Tax payable as per the case.
Filing DRC-03 (Demand & Recovery) When department raises demand or you want to regularize past mistakes formally.
Since this ITC was claimed in past years and now recognized as ineligible, best practice is to reverse the amount in current period via GSTR-3B if no demand is raised.
Effect of paying tax at 5% without utilizing ITC:
If client is paying tax without utilizing ITC (e.g., composition dealer or supply under 5% slab without ITC), then ITC cannot be utilized, so ineligible ITC must be reversed to avoid wrongful credit accumulation.
Interest Payment:
Interest must be paid on the amount of ineligible ITC reversed, calculated from the date of wrongly availing ITC till the date of reversal/payment.
Ineligible ITC must be reversed:
ITC which was wrongly claimed (ineligible) should be reversed along with interest under Section 16(2)(c) & Section 50 of CGST Act.
Even if the tax is paid without utilizing ITC, the credit shown in ledger for ineligible ITC needs to be reversed.
Method of reversal:
Method When to Use
Reversal in Current Return Adjust ITC reversal amount in Table 4(B) of current GSTR-3B under Tax payable on reverse charge or in Tax payable as per the case.
Filing DRC-03 (Demand & Recovery) When department raises demand or you want to regularize past mistakes formally.
Since this ITC was claimed in past years and now recognized as ineligible, best practice is to reverse the amount in current period via GSTR-3B if no demand is raised.
Effect of paying tax at 5% without utilizing ITC:
If client is paying tax without utilizing ITC (e.g., composition dealer or supply under 5% slab without ITC), then ITC cannot be utilized, so ineligible ITC must be reversed to avoid wrongful credit accumulation.
Interest Payment:
Interest must be paid on the amount of ineligible ITC reversed, calculated from the date of wrongly availing ITC till the date of reversal/payment.
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