ITC Reversal under GST
Businesses can leverage the Input Tax Credit (ITC) on GST paid for raw materials and services used in production or sales. However, if ITC is erroneously claimed, it necessitates a reversal by repaying the amount in the subsequent month. This guide explores the essence, intent, and scenarios necessitating ITC reversal.
Budget 2022 Updates:

• ITC claims disallowed if restricted in GSTR-2B under Section 38.
• The deadline for claiming ITC on invoices/debit notes of a fiscal year is either 30th November of the following year or the date of annual returns filing.
• Section 38 is revamped as ‘Communication of inward supplies and ITC', aligning with Form GSTR-2B, detailing ITC eligibility.
• Section 41 is updated to remove provisional ITC references, allowing only self-assessed ITC claims.
• Sections 42, 43, and 43A on provisional ITC claims are removed.

As of 29th December 2021: CGST Rule 36(4) is amended to disallow the extra 5% ITC over what's in GSTR-2B. From 1st January 2022, ITC is claimable only if reported in GSTR-1/IFF and reflected in GSTR-2B. 21st December 2021: Effective January 2022, taxpayers cannot claim the provisional 5% ITC under CGST Rule 36(4).
Understanding ITC Reversal:
Even if base conditions for claiming ITC are met, some cases require ITC reversal—meaning input credits used earlier must now be added back to the output tax liability, offsetting prior claimed credit. Interest payment might also apply.
Specific ITC Reversal Scenarios:
The Act dictates several reversal scenarios, including:
CGST Rule 37: Non-payment to supplier within 180 days.
CGST Rule 37A: Supplier fails to remit tax by the following year’s September 30th.
CGST Rule 38: Banking firms reverse 50% ITC under special regulations.
CGST Rule 42: Use of inputs for exempted supplies or personal purposes monthly/yearly.
CGST Rule 43: Relevant for capital goods with similar applications as Rule 42.
CGST Rule 44: GST registration cancellations or switching to composition scheme requires filing form REG-16.
CGST Rule 44A: Reversal of ITC from stocks of gold dore bars as of July 2017 occurs upon supply.
Section 16(3): Depreciation claimed on GST-eligible capital goods triggers a reversal.
CGST Section 17(5): Blocked credits are reversed at regular returns filing.
ITC Reversal Calculation:
The calculation involves segregating ITC into specific and common credits, applying formulas to determine non-taxable or personal use reversals. Detailed rules like Rule 42 and Rule 43 guide reversals based on inputs or capital goods, respectively.
Reporting and Filing:
ITC reversals are reported in GSTR-3B and GSTR-9, either manually calculated by taxpayers or assisted using automated tools like ClearTax for accuracy.
Comprehensive awareness and appropriate return filing can streamline ITC reversal, thus helping businesses maintain compliance under GST norms.