ITC reversal on account of IND AS adoption

Hi Indira,

Good question on ITC and IND AS impact!

Scenario:

• You paid GST on rental payments and claimed ITC.

• Due to IND AS adoption (Ind AS 116 - Leases), you reversed rental expense to the extent of lease liability (capitalization of lease liability).

GST / ITC Treatment:

Key points:

1. GST ITC is claimed on actual tax paid on supply of goods/services.
   When you initially paid rent (which includes GST), ITC was correctly claimed.

2. Reversal of rental expense in books due to Ind AS is an accounting adjustment — it does not mean the underlying supply of service (rental) never happened.

3. GST law ITC reversal applies only in specific cases like where input is used for exempt supplies or asset becomes non-business, etc.
   IND AS accounting changes do not directly mandate ITC reversal unless underlying GST invoice is canceled or rent transaction is undone.

4. Lease liability recognition under Ind AS 116 capitalizes the lease as an asset and a liability.
   The lease rental expense portion relating to interest (finance cost) continues to be expensed, while principal portion reduces liability.

5. Therefore, the ITC already claimed on GST paid on rental invoices should not be reversed solely because of accounting standard adoption.

In Summary:

Suggestion:

• Maintain clear documentation showing that GST payments were made and invoices are valid.

• Keep Ind AS adjustment separate for accounting purposes.

• Consult your GST advisor for any specific case nuances.