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Input Tax Credit can be said to be one of the key elements of the entire Goods and Service Tax (GST) framework with one of the major USPs i.e. seamless flow of credit in the entire GST chain.
The present indirect taxation system suffers with cascading tax effect due to non-availability of credit at various points in the supply chain. However, under the GST regime, credit of GST is expected to be available at every stage in the entire supply chain.
Input Tax Credit can be said to be one of the key elements of the entire Goods and Service Tax (GST) framework with one of the major USPs i.e. seamless flow of credit in the entire GST chain.
Just like in present tax structure, Reversal of Credit under GST also has the same meaning. In a layman language, reversal of credit means reversal of the credit already taken.
Reversal of credit means the credit which is availed and utilized, so long the final product is taxable, but subsequently when final product becomes exempt, the availed and utilized credit is reversed.
Illustration - Capital goods have been in use for 4 years, 6 month and 15 days.
The residual remaining life in months= 5 months (60 – 55 months) ignoring a part of the month Input tax credit taken on such capital goods = 12000
Input tax credit attributable to remaining residual life= 12000 X 5/60 = 1000
Point 11 in GSTR 2 deals with reversal of input tax credit of which two are the most concerned topics of input tax credit reversals - ITC reversal in GST rule 42 and 43. Let us discuss the same in detail and the tax treatment for the same from the following table:
Description for reversal of ITC |
Tax treatment |
Amount of ITC |
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IGST |
CGST |
SGST/UTGST |
IGST |
Amount in terms of rule 42: |
By adding such disallowed portion to output tax liability. |
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Amount in terms of rule 43: |
By adding such disallowed portion to output tax liability. |
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Description of reversal of ITC |
Tax Treatment |
Amount of ITC |
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business or for effecting taxable supplies by |
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Note: The amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in the column mentioned above.
Know More about ITC
Input Tax Credit, Input Tax Credit Calculator, Eligible ITC under GST, GST ITC-04, ITC Utilization in GST
GST
GST Software, GST Calculator, GST Exempted Goods & Services, GST Rates, HSN Codes, SAC Codes, GST State Codes, New GST Returns & Forms, Sahaj GST Returns, Sugam GST Returns
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