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Is Conversion of Sundry creditors to unsecured Loan than ITC required to be Reversed?
It is big question on Conversion of Sundry creditors to unsecured Loan than ITC required to be Reversed, Let's break down the key points regarding Input Tax Credit reversal under the Central Goods and Services Tax Act, 2017.
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Non-business Purposes or Exempt Supplies:
- According to Section 17(1) of the Central Goods and Services Tax Act, 2017, Input Tax Credit is not available on goods or services used for non-business purposes or for making exempt supplies.
- If goods or services are used for non-business purposes or for making exempt supplies, Input Tax Credit availed on such inputs must be reversed.
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Unsecured Loans and Supplies:
- Unsecured loans from sundry creditors are typically not considered as supplies under GST. Therefore, the Input Tax Credit availed on the inputs used for making these loans would not generally be subject to reversal.
- However, if these unsecured loans are used in a manner that results in making taxable supplies, the situation changes.
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Conversion into Taxable Supplies:
- If the unsecured loans are converted into taxable supplies, the Input Tax Credit availed on the inputs used for making these supplies would need to be reversed.
- This reversal is mandated u/s 17(2) of the Central Goods and Services Tax Act, 2017, which deals with the apportionment of credit and blocked credits.
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Section 17(2) of the CGST Act, 2017:
- This section specifies that the Input Tax Credit attributable to exempt supplies or non-business purposes should be reversed.
- If the inputs or input services are partly used for taxable supplies and partly for exempt supplies, the ITC needs to be apportioned appropriately.
In Summary on Conversion of Sundry creditors to unsecured Loan than ITC required to be Reversed
The following approach ensures compliance with GST laws while availing and reversing Input Tax Credit.
- No Conversion into Taxable Supplies: Input Tax Credit reversal is not required if the unsecured loans remain as such and are not converted into taxable supplies.
- Conversion into Taxable Supplies: ITC reversal is required if the unsecured loans are converted into taxable supplies by following the provisions of Section 17(2) of the Central Goods and Services Tax Act, 2017.
