INTEREST APPLICABLE ON ITC REVERSAL PORTION

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This query is : Resolved

Quick Summary

Interest on ITC reversal applies only if wrongly availed and utilized. If reversed on time, no interest. Delayed or non reversal may attract interest and demand. Full eligible reversal amount must be reversed, not just balance, as per rules.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)

20 April 2026 ITC was availed on capital goods purchased in December 2024. Now, ITC is required to be reversed in the March 2026 return. Is any interest applicable on the amount to be reversed? Also, what are the consequences if such ITC is not reversed or is reversed at a later date? Additionally, what are the consequences for the portion pertaining to the period from December 2025 to March 2026?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

20 April 2026 Interest is not leviable merely because ITC on capital goods is being reversed in March 2026. Under section 50(3), interest applies only where ITC is wrongly availed and utilised. Hence, if the reversal is being made in the correct return when it became due, interest may not arise. However, if the reversal ought to have been made earlier and the credit remained utilised, interest can apply from the date of utilisation till reversal/payment, as per section 50(3) read with Rule 88B. Non-reversal or delayed reversal can also invite demand proceedings. If the case falls under annual Rule 43 final adjustment, separate interest provisions may apply from 1 April of the succeeding financial year.

Suresh S. Tejwani

Suresh S. Tejwani (Querist)

21 April 2026 IN CASE REVERSAL, AM I REVERSE THE FULL ITC OR BALANCING PORTION. e.g., I AM LIABLE TO REVERSE Rs. 1,00,000 and i already utilised against sales tax Rs. 20,000. what amount should i reverse is it Rs. 1,00,000 or 80,000??

Suresh S. Tejwani

Suresh S. Tejwani (Querist)

21 April 2026 CGST and SGST ITC has not been utilized throughout the period, but capital goods ITC was in IGST. Can CGST and SGST ITC be used for reversal in place of IGST ITC?

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