Reversal of ITC on insurance claim

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This discussion clarifies the requirement to reverse Input Tax Credit (ITC) when an insurance claim is made for damaged perishable goods. Even if the goods are not destroyed but have deteriorated in quality, ITC reversal is generally necessary under Section 17(5)(h) of the GST Act. The amount of ITC to be reversed depends on the extent of the loss or damage.

anand

anand (Querist)
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10 February 2021 Sir, my client is into the business of perishable goods, further, my client was sanctioned insurance of Rs.8,00,000 by the insurance company on account goods damaged due to rain water entering the godown. Furthermore, the sanctioned amount was given on quality deterioration of goods (i.e quality of goods reduce from Rs.100 to Rs.80) and not on account of destruction of goods.
My question is whether I have to reverse the ITC availed on the Rs.8,00,000/

CA Shivam Arora

CA Shivam Arora (Expert)
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10 February 2021 Yes you are required to reverse such ITC in terms of clause i of section 17(5). Calculation plays an important part here because of partial damage. If the damage is of 8lakhs or less then you can reverse ITC availed on Rs. 8 lakhs(a conservative and simple approach) but if your loss is more than Rs. 8 lakhs then you need to reverse the ITC on such loss amount.

anand

anand (Querist)
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10 February 2021 Sir, there is no clause i to section 17(5)

CA Shivam Arora

CA Shivam Arora (Expert)
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10 February 2021 Pardon me ! Refer clause h. In the site given below they are showing it under clause i(alphabetical) which is wrong.

https://cbic-gst.gov.in/CGST-bill-e.html

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