Dear sir/madam,
As per new GST rate rules, if a taxable goods became exempt, ITC on the stock held as on 22.09.2025 is should be reverse. But my question is, If we purchase 5% rate category good for Rs.105.00,(taxable Rs.100 + GST Rs.5) after 22nd that goods became exempt, Now i can't collect GST I should sell it for Rs.100 only. How can i recover the loss of 5%?
The 5% GST amount has to be reversed by filling Form ITC03 and the 5% become cost of raw material. U can increase the price to the extent of the 5%.
Adding the law and the practical options:
• Sec 17(4) read with Rule 44(4): when goods become wholly exempt, ITC on inputs held in stock (and in semi-finished or finished goods) on the day before the exemption must be reversed. File FORM GST ITC-03 within 30 days, through cash or credit ledger.
• The reversed 5% becomes part of the inventory cost. There is no refund route, because exempt supplies are not zero-rated and inverted-duty refund (Sec 54(3)) does not apply to exempt outputs.
• Recovery is commercial: (a) negotiate a credit note or price adjustment with the supplier for unsold stock bought just before 22 September 2025; (b) reprice. The anti-profiteering principle applies to rate cuts, not to absorbing a reversal.
• Going forward:
– Purchases of these goods carry GST you cannot claim, so negotiate a lower purchase price.
– Common inputs and services must be apportioned between taxable and exempt supplies under Rule 42/43, with an annual true-up in September's GSTR-3B.
– If all your supplies are now exempt, cancel registration (Sec 29) and pay ITC on remaining stock and capital goods in REG-16/GSTR-10.
When goods transition from taxable to exempt, you must reverse the proportionate ITC on existing stock via FORM GST ITC-03. The reversed tax amount is capitalized as part of the material cost, and the retail price can be adjusted commercially to recover the cost impact since no GST can be collected on outward sales.
If the goods became exempt from 22 September 2025, an onward sale on or after that date is generally made without GST, so you cannot separately collect the earlier ₹5 as output tax. The ₹5 paid on purchase is not automatically recoverable from the buyer: it is part of your purchase cost if the goods are sold for ₹100. Check whether your purchase price or sale terms allow a price adjustment with the supplier or customer.
The ITC reversal rule for stock on the date of exemption is a separate issue from goods purchased after that date. If the goods were already exempt when you bought them, confirm that the supplier correctly charged GST and whether you are eligible to claim that credit; the applicable notification and effective date matter. For closing stock held when exemption took effect, determine the reversal under the relevant GST provisions and rules.
This exemption change also affects purchase pricing, inventory valuation and ITC reconciliation. Manual practice work across these records is difficult, while automation reduces repetitive work and keeps professional judgment in control. At Jir AI, our 2,000+ AI agents and 650+ integrations streamline GST, ITR, TDS, TCS and other compliance workflows, helping reduce manual workload by up to 70%. WhatsApp us to discuss your workflow: https://wa.me/message/3HVOZ7HIY4ESC1
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