ITC reversal when ITC wrongly claimed

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183 Points Joined June 2017
A restaurant business mistakenly claimed input tax credit (ITC) on an invoice with a 5% GST, which is not eligible for ITC under GST regulations. Please advise on how to reverse this ITC, and whether interest and penalties will apply? Please provide relevant sections for reference.
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On 06 December 2024 at 14:36 Report
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Master in Accounts & high court Advocate
9494 Points Joined December 2011

A common mistake! Reversal of ITC To reverse the incorrectly claimed ITC, the restaurant business should:

1. *Identify the incorrect ITC claim*: Verify the invoice and GST return (GSTR-3B) to confirm the incorrect ITC claim. 

2. *Calculate the incorrect ITC amount*: Determine the amount of ITC incorrectly claimed. 

3. *Reverse the ITC in GSTR-3B*: In the next GSTR-3B return, reverse the incorrect ITC amount by reporting it as a negative entry in Table 4 (Reversal of ITC). 

4. *Pay the tax and interest*: Pay the tax amount corresponding to the reversed ITC, along with interest, if applicable. Interest and Penalties Interest and penalties may apply, depending on the circumstances:

 1. *Interest*: Interest may be applicable on the incorrect ITC amount, as per Section 50 of the CGST Act, 2017.

 2. *Penalties*: Penalties may be imposed under Section 122 of the CGST Act, 2017, if the incorrect ITC claim is deemed to be a deliberate attempt to evade tax. Relevant Sections 1. *Section 16(2)*: ITC can be availed only if the supplier has complied with the provisions of the Act. 2. *Section 17(5)*: ITC is not available on certain goods and services, including food and beverages served in restaurants.

3. *Section 42*: Procedure for reversal of ITC. 

4. *Section 50*: Interest on delayed payment of tax.

 5. *Section 122*: Penalties for certain offenses.

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On 06 December 2024 at 15:08
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Finance Professional
23747 Points Joined November 2019

 

You may report the reversal in Table 4(B)(2) of GSTR-3B under "ITC Reversed – Others"

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On 09 December 2024 at 17:43


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