Input Tax Credit Reversal in GSTR-3B & GSTR-2

Under GST you can claim the taxes you have paid on inputs (purchases) from the taxes you are supposed to pay on output(sales). To be able to claim this benefit, you must meet the following conditions –

• Payment the supplier within 180 days from issue of invoice 
• Inputs and capital goods should not be used for personal purposes 
• Inputs and capital goods should not be used for providing exempt supplies If you do not meet these conditions, you are not allowed to claim input credit of the taxes paid on inputs. 

However, these purchases automatically reflect in your GSTR-2A and therefore you will have to do a reversal of input tax credit on these purchases while filing your GSTR-3B (previously form GSTR-2 up to August 2017). Form GSTR-2 was suspended from September 2017 onwards and therefore GSTR-3B took over its place.

ITC Reversal in GSTR-3B

Table 4(B) of the GSTR-3B form pertains to ITC reversal of all types.

1. In accordance with CGST Rules 42 and 43 of the CGST Rules, input credit for products and services used partly for business and partly for other purposes must be reversed. When supplies include taxable, exempt, and nil-rated products, input credit reversal is also needed. Any input tax credit on capital goods used for making taxable, exempt, nil-rated supplies must be allocated and reversed to the extent not used for business.
2. Others include any other ITC which has to be reversed in the books of accounts of the taxpayer.

The GSTR-2B provides information about whether or not a particular ITC is eligible for claims. If it is not but has been availed, then the taxpayer must reverse the same in GSTR-3B.

ITC Reversal in GSTR-2

Table 11 in GSTR 2 deals with reversal of input tax credit, follows:

ITC on inward supplies

This is pertaining to 11.A.(a) – Amount in terms of rule 37(2) in GSTR 2 As a dealer, you would have availed ITC on inward supplies. But if you fail to pay the invoice amount to the supplier within 180 days the ITC has to be reversed. If part of the invoice is paid the ITC will be reversed on a proportionate basis. The ITC reversed has to be added to output liability. 

Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in column 3, 4, 5 and 6. 

For example –  Mr. A received goods on 1st July 2017 worth Rs.10,000 on which GST Rs.1,800 was charged. Mr. A claimed the GST of Rs.1,800 as ITC in his GSTR 2 Mr. A could not pay the invoice amount till December 2017. This means that Mr. A will have to reverse the ITC of Rs.1,800 while filing GSTR 2 for December 2017 in January 2018.  

Credit note issued to ISD

This is pertaining to 11.A.(b) – Amount in terms of rule 39(1)(j)(ii). When an ISD receives a Credit Note from a supplier the ITC distributed previously has to be reversed. The dealers to whom the credit was distributed also have to reverse this ITC. This reversal of input tax credit shall be in the same proportion as in the original ITC distribution by the ISD. The ITC reversed has to be added to output liability. This has to be mentioned in column 

Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in column 3, 4, 5 and 6.

For example – M/s X receives services worth Rs.1,00,000 on which GST of Rs.18,000 was paid. M/s X distributed this credit to two dealers A and B in the ratio of 1:2.

A and B claimed the ITC in the GSTR 2. Now M/s X has received a credit note worth Rs.23,600 (including GST of Rs.3,600) This GST of Rs.3,600 has to be reversed by A & B in the ratio of 1:2 A will reverse ITC of Rs.1,200 (3600 * 1 / 3) B will reverse ITC of Rs. 2,400 (3,600 * 2 / 3) This will be included in the GSTR 2 by both A and B in the reversal of input tax credit section.  

ITC on input supplies partly used for business and partly for exempt supplies or personal use

This is pertaining to 11.A.(c) – Amount in terms of rule 42(1)(m). The ITC used for exempt supplies and personal purpose has to be reversed in GSTR 2. 

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)

In simple words, common credit is ITC on inputs partly used for exempt supplies 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 these ITC amounts as calculated have to be reversed in the GSTR 2 filed by the dealer.  The ITC to be reversed has to be added to output liability. This has to be mentioned in column 2. 

Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in column 3, 4, 5 and 6.  

ITC on Capital Goods partly used for 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 goods used for the supply of exempt supplies and non-business purposes will also be reversed. The calculation will be similar to the calculation for ITC on inputs used for exempt supplies and personal use. 

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 rated 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 – This reversal of input tax credit has to be done on a monthly basis. The life of any asset is considered as 5 years. So the amount of ITC reversal every month will be = Amount arrived at in Step 2 / 60 (months) The ITC to be reversed has to be added to output liability. This has to be mentioned in column 2. Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in column 3, 4, 5 and 6.  

Reversal of ITC on inputs used for exempted/non-business purpose is more than the ITC reversed during the year

This is pertaining to 11.A.(e) – Amount in terms of rule 42 (2)(a). After filing GSTR 9 – Annual Return the total ITC on inputs used for non-business or exempt supplies can be more than the total ITC reversed during the year in the GSTR 2. In that case, the differential amount must be reversed in the GSTR 2.

The difference will be added to output tax liability. This has to be mentioned in column 2. Also, the amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess and entered in column 3, 4, 5 and 6.  

ITC reversed during the year is more than ITC on inputs used for exempted / non-business purpose 

This is pertaining to 11.A.(f) – Amount in terms of rule 42(2)(b). This is the opposite of the previous point. Either Point 5 or 6 will be applicable to you. In this case, the differential amount can be reclaimed as ITC. The amount should be reduced from output liability.  The amount of ITC to be reclaimed has to be segregated into IGST, CGST, SGST and Cess.  

Payment of ITC reversal added to Output Tax Liability

This is pertaining to 11.(A).(g) – On account of the amount paid subsequent to reversal of ITC. All ITC reversals which increase output tax liability are required to be paid. Any payment made has to be mentioned in this point. 

The tax paid has to be categorised as IGST, CGST, SGST and Cess.   

Amendments to information regarding ITC reversal provided in earlier return

This is pertaining to 11.(B) – Amendment of information furnished in Table No 11 at S. No.A in earlier return. Since there is no option of revising GSTR 2 any amendments to be made to previous reversals has to be mentioned here.  

For more information, read our articles on ClearTax:

• How to compute the amount of ITC reversal under GST?
• All about the law on matching,reversal and reclaim under GST
• What are the ITC rules for common credit?
• All you need to know about ITC adjustment under GST
• Steps to file GSTR-3B on the GST portal