Categories: Gst Compliance

ITC reversal is not required when unsecured loan remain loan

No ITC reversal is required when unsecured loans remain loans (not considered supplies).

Under GST laws, Input Tax Credit reversal is mandated in cases where goods or services are used for non-business purposes or for making exempt supplies. Since unsecured loans are not considered as “supplies” under GST, the Input Tax Credit availed on inputs used for such loans is not eligible for reversal.

However, if the unsecured loans are later converted into taxable supplies, the Input Tax Credit related to the inputs used for making these supplies would need to be reversed in accordance with Section 17(2) of the THE CENTRAL GOODS AND SERVICES TAX ACT2017. This section governs the apportionment of credit and specifies instances where credit must be reversed.

In Summary:

  • No Input Tax Credit reversal is required when unsecured loans remain loans (not considered supplies).
  • If the loans are converted into taxable supplies, Input Tax Credit reversal would be required under Goods and Services Tax law as per Section 17(2) of the THE CENTRAL GOODS AND SERVICES TAX ACT, 2017.

Conditions for Input Tax Credit (ITC) reversal

When businesses pay taxes to the government, they can use the Input Tax Credit on Goods and Services Tax paid for their purchases, like raw materials or services used in the manufacturing or selling of products. But, if Input Tax Credit is wrongly claimed, it must be reversed by making the appropriate payment in the subsequent month.

Conditions for Input Tax Credit Reversal

Input Tax Credit reversals are required under several scenarios defined in the Goods and Services Act. Some of these are summarized as follows:

Relevant GST Section/Rule Circumstance When ITC Reversal is Required
CGST Rule 37 Recipient fails to pay the supplier for a supply Within 180 days from the invoice date
CGST Rule 37A Supplier fails to pay tax via GSTR-3B by 30th September On or before 30th Nov of the following FY
CGST Rule 38 50% Input Tax Credit reversal by banking and financial companies At the time of filing returns
CGST Rule 42 Inputs used for exempt or non-business purposes Monthly/yearly, using a specific formula
CGST Rule 43 Capital goods used for exempt or non-business purposes Monthly/yearly, using a specific formula
CGST Rule 44 Cancellation of Goods and Services Tax registration or switching to composition scheme During filing of Form REG-16 or ITC-03
CGST Rule 44A 5/6th Input Tax Credit reversal for gold dore bars stock as of 1st July 2017 At the time of supply of gold dore bar/gold/gold jewellery
Section 16(3) Depreciation claimed on Goods and Services Tax component of capital goods At the time of closing accounts for that FY
CGST Section 17(5) Input Tax Credit availed on blocked credits During regular returns filing, up to annual return
CGST Section 17(5)(h) Inputs used in goods lost, destroyed, or stolen During regular returns for the month of the loss
CGST Section 17(5)(h) Inputs used in goods given as free samples During regular returns for the month of free sample issuance
Rajput Jain & Associates

Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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