As a small or medium business owner or startup founder in India, you must have come across the term GST or Goods and Services Tax. GST is an indirect tax levied on the supply of goods and services in India. Under GST, businesses can claim Input Tax Credit (ITC) on the taxes paid on their purchases, which can be used to offset their tax liability on their sales.
However, there are instances when businesses have to reverse the ITC claimed earlier. This is known as Reversal of Input Tax Credit in GSTR 2 or ITC Reversal in GSTR-2. In this article, we will explain all you need to know about ITC Reversal in GSTR-2.
ITC Reversal in GSTR-2 is a process where businesses have to reverse the ITC claimed earlier in certain scenarios. This means that businesses will have to pay back the ITC claimed along with interest if they are unable to utilize the ITC or if they have utilized it for non-business purposes.
The following are the scenarios where ITC Reversal in GSTR-2 applies:
1. Non-payment to suppliers: If businesses have not paid their suppliers within 180 days of the invoice date, they will have to reverse the ITC claimed on those invoices.
2. Non-filing of GSTR-1: If suppliers have not filed their GSTR-1 for two consecutive months, businesses will have to reverse the ITC claimed on those invoices.
3. Exempt supplies: If businesses make exempt supplies, they will have to reverse the ITC claimed on inputs, input services, and capital goods used in making such supplies.
4. Non-business use: If businesses have used the goods or services for non-business purposes, they will have to reverse the ITC claimed on those goods or services.
5. Blocked credits: If businesses have claimed ITC on goods or services that are not eligible for ITC, they will have to reverse the ITC claimed on those goods or services.
ITC Reversal in GSTR-2 can be calculated as follows:
1. Non-payment to suppliers: The amount of ITC claimed on the invoices that have not been paid within 180 days of the invoice date, along with interest.
2. Non-filing of GSTR-1: The amount of ITC claimed on the invoices from suppliers who have not filed their GSTR-1 for two consecutive months.
3. Exempt supplies: The amount of ITC claimed on inputs, input services, and capital goods used in making exempt supplies.
4. Non-business use: The amount of ITC claimed on goods or services used for non-business purposes.
5. Blocked credits: The amount of ITC claimed on goods or services that are not eligible for ITC.
ITC Reversal in GSTR-2 can be reported as follows:
1. Non-payment to suppliers: The details of the invoices that have not been paid within 180 days of the invoice date should be reported in Table 4 of GSTR-2. The amount of ITC claimed on those invoices should be reported in Table 5 of GSTR-2.
2. Non-filing of GSTR-1: The details of the invoices from suppliers who have not filed their GSTR-1 for two consecutive months should be reported in Table 4 of GSTR-2. The amount of ITC claimed on those invoices should be reported in Table 5 of GSTR-2.
3. Exempt supplies: The details of the inputs, input services, and capital goods used in making exempt supplies should be reported in Table 7 of GSTR-2. The amount of ITC claimed on those inputs, input services, and capital goods should be reported in Table 5 of GSTR-2.
4. Non-business use: The details of the goods or services used for non-business purposes should be reported in Table 6 of GSTR-2. The amount of ITC claimed on those goods or services should be reported in Table 5 of GSTR-2.
5. Blocked credits: The details of the goods or services that are not eligible for ITC should be reported in Table 4 of GSTR-2. The amount of ITC claimed on those goods or services should be reported in Table 5 of GSTR-2.
Reversal of Input Tax Credit in GSTR 2 or ITC Reversal in GSTR-2 is an important aspect of GST compliance for businesses. Businesses should ensure that they comply with the rules and regulations related to ITC Reversal in GSTR-2 to avoid penalties and interest.
If you are a small or medium business owner or startup founder in India, it is advisable to seek professional advice to understand the complexities of GST and ensure compliance with the relevant laws and regulations.
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