Reversal of Input Tax Credit in GSTR-2

Under GST, you can deduct the taxes you have already paid on purchases (inputs) from the taxes you still owe on output (sales). You must fulfil the requirements listed below to be eligible for this benefit:

• Before paying the supplier, 180 days must have passed since the invoice's date.

• It is unethical to use inputs and capital assets for personal use.

• Exempt supply should not be provided using inputs or capital products. You cannot claim input credit for the taxes paid on inputs if you do not meet these requirements.

However, as a result of these purchases immediately reflecting in your GSTR-2A, you must reverse the input tax credit on these purchases when submitting your GSTR-3B. GSTR-3B replaced Form GSTR-2, which was suspended starting in September 2017 and has since been replaced.

ITC Reversal In GSTR - 3B

All sorts of ITC reversals are addressed in Table 4(B) of the GSTR-3B form. 

• Input credit for goods and services used partially for business and partially for other purposes shall be reversed in accordance with CGST Rules 42 and 43 of the CGST Rules. Input credit reversal is also required when supplies contain taxable, exempt, and nil-rated products. Input tax credits on capital goods must be assigned and reversed to the degree they were not utilised for business when they were used to make taxable, exempt, or nil-rated deliveries.

• Others include any other ITC that needs to be reversed in the taxpayer's accounting records.

Information on a certain ITC's claim ability is included in the GSTR-2B. The taxpayer must adjust the GSTR-3B in the event that it was not used but had been obtained.

ITC On Inward Supplies

This applies to GSTR 2's 11.A.(a) - Amount under Rule 37(2). You would have benefited from ITC on inward supplies as a trader. However, the ITC must be reversed if the invoice amount is not paid to the supplier within 180 days. If only a portion of the invoice is paid, the ITC will be proportionately reversed. The production liability must be increased by the ITC reversed. This needs to be stated in the column.

Additionally, columns 3, 4, 5, and 6 should be used to input the amount of ITC that needs to be reversed after being further divided into IGST, CGST, SGST, and Cess.

For example – Mr X received goods on 1st July 2019 worth Rs.10,000 on which GST Rs.1,600 was charged. Mr X claimed the GST of Rs.1,600 as ITC in his GSTR 2 Mr X could not pay the invoice amount till December 2019. This means that Mr X will have to reverse the ITC of Rs.1,600 while filing GSTR 2 for December 2019 in January 2020.

Credit Note Issued To ISD

This relates to rule 39(1)(jamount )'s requirement in 11.A.(b) (ii). The ITC that was previously distributed must be reversed when an ISD gets a Credit Note from a supplier. This ITC must likewise be reversed by the dealers to whom the credit was distributed. The input tax credit will be reversed in the same proportion that it was distributed as the ISD initially did it. The production liability must be increased by the ITC reversed. This needs to be stated in the column.

Additionally, columns 3, 4, 5, and 6 should be used to input the amount of ITC that needs to be reversed after being further divided into IGST, CGST, SGST, and Cess.

ITC On Input Supplies Patly Used For Business And Partly or Exempt Supplies Or Personal Use

This relates to rule 42(1)'s, an amount required in 11.A.(c) (m). In GSTR-2, the ITC utilised for exempt supplies and personal use must be reversed.

How To Calculate ITC Reversal On Exempt Supplies?  

Step 1: Calculate Common Credit

Common Credit = Total ITC on input supplies

(less) ITC on supplies Used for personal purposes

(less) ITC on supplies Used for providing exempt supplies

(less) ITC on which credit is not available

(less) ITC on supplies other than exempted but including zero-rated supplies (ITC on normal supplies) 

Common credit is just ITC on inputs that were partially used for exempt items or personal use.

Step 2: Amount of reversal of input tax credit attributable to inputs partly used for exempt supplies = (Value of exempt supplies * Common credit) / Total turnover in the state. 

How To Calculate ITC On Personal Use?  

5% of Common Credit Both of these computed ITC amounts must be reversed in the dealer's GSTR-2 report. Output liability must be increased by the ITC, which will be reversed. This must be noted in column 2.

Additionally, columns 3, 4, 5, and 6 should be used to input the amount of ITC that needs to be reversed after being further divided into IGST, CGST, SGST, and Cess.

ITC On Capital Goods Partly Used or Business And Partly For Exempt Supplies Or Personal Use

This is pertaining to 11.A.(d) – Amount in terms of rule 43(1)(h). ITC on capital items used for both non-business and the supply of exempt supplies will likewise be reversed. It will work similarly to how the ITC on inputs used for exempt supplies and private usage is calculated.

Step 1: Calculate Common Credit

Common Credit = ITC on Capital Goods

(less) ITC on capital goods put to personal use

(less) ITC on capital goods used for exempted goods

(less) ITC on capital goods used in supplies other than exempted but including zero rate supplies (ITC On Normal Supplies)

Step 2:  Amount of ITC reversal attributable to capital goods partly used for Exempt supplies and Personal use = (Value of Exempt Supplies * Common Credit)/Total Turnover in the State 

Step 3: The input tax credit must be reversed monthly. Any asset's life is seen as lasting five years. As a result, the monthly ITC reversal will be equal to = Amount Calculated in Step 2 / 60. (months) Output liability must be increased by the ITC, which has to be reversed. Column 2 needs to include a notice of this. Additionally, columns 3, 4, 5, and 6 should be used to input the amount of ITC that needs to be reversed after being further divided into IGST, CGST, SGST, and Cess.

Reversal Of ITC On Inputs Used For Exempted/Non-Business Purposes Is More Than The ITC Reversed During The Year

This relates to rule 42 (2)'s amount requirement in 11.A.(e) (a). The total ITC on inputs utilised for non-business or exempt supplies after submitting GSTR 9 - Annual Return may exceed the total ITC reversed throughout the year in GSTR-2. In that situation, GSTR-2 must reverse the disparity amount.

The difference will increase the production tax obligation. Column 2 needs to include a notice of this. Additionally, columns 3, 4, 5, and 6 should be used to input the amount of ITC that needs to be reversed after being further divided into IGST, CGST, SGST, and Cess.

ITC Reversed During The Year Is More Than ITC On Inputs Used For Exempted / Non-Business Purpose

This relates to rule 42(2)'s amount requirement in 11.A.(f) (b). Contrary to the prior statement, this one. It depends on which of the points 5 or 6 applies to you. The difference can then be claimed as ITC in this situation. The sum needs to be taken out of output liabilities. Separating the amount of ITC to be reclaimed into IGST, CGST, SGST, and Cess is required.

Payment Of ITC Reversal Added To Output Tax Liability

This is relevant to 11. (A). (g) - Due to the amount paid after the ITC was reversed. Any ITC reversals that result in a higher output tax obligation must be paid. Any payments must be disclosed at this point. The tax paid has to be categorised as IGST, CGST, GST and Cess.

Amendments To Information Regarding ITC Reversal Provided In Earlier Return 

This relates to 11(B) - Modification of Information Provided at S. No. A in Earlier Return in Table No. 11. Any changes that need to be made to prior reversals must be indicated here because GSTR-2 cannot be revised.