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Reversal of Input Tax Credit (ITC) if a Registered Person under Normal Scheme Opts for Composition Scheme [Section 18(4)]

Reversal of Input Tax Credit (ITC) if Goods and Services supplied by him which were earlier Taxable become wholly Exempt [Section 18(4)]

Where any registered person who has availed of input tax credit—

— opts to pay tax under section 10 (i.e. composition scheme) or,

— where the goods or services or both supplied by him become wholly exempt,

he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption.

Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

The amount payable under section 18(4) shall be calculated in such manner as may be prescribed.

See Rule 44 below [Section 18(5)]

Manner of Reversal of Input Tax Credit (ITC) under Special Circumstances [Rule 44 of the CGST Rules, 2017]

(1)       As per Rule 44(1), the inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock shall, for the purposes of section 18(4) (see above) or section 29(5) (relating to reversal of credit on cancellation of registration), be determined in the following manner namely,—

(a) For inputs held in stock, and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input.
Example :
R is a trader and entitled to Composition Levy Scheme. On 1.12.2017 he switches over from Normal Scheme to Composition Levy. On 30.11.2017 the position of ITC is as under:


Amount (Rs.)


ITC in respect of input contained in finished goods held in stock

Rs. 47,500


Total ITC available in the Electronic Credit Ledger as on 30.11.2017

Rs. 54,000


Amount to be paid by way of debit in the Electronic Credit or Cash Ledger

Rs. 47,500


Balance of ITC that shall lapse in terms of proviso to Section 18(4) i.e. (B)—


(b)       For capital goods held in stock the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years;

Example :

Capital goods have been in use

4 years, 6 month and 15 days.

The useful remaining life in months

5 months ignoring a part of the month

Input tax credit taken on such capital goods

Say ‘C’

Input tax credit attributable to remaining useful life

‘C’ multiplied by 5/60

(2)       The amount, as prescribed in rule 44(1) shall be determined separately for input tax credit of integrated tax and central tax [Rule 44(2)]

(3)       Where the Lax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount under rule 44(1) based on the prevailing market price of goods on the effective date of occurrence of any of the events specified lit, section 18(4) i.e. shifting from regular rate to composition levy or goods supplied by supplier have become wholly exempt, or 29(5) which deals with reversal of input tax credit in the event of cancellation of registration. [Rule 44(3)]

(4)       The amount determined under rule 44(1) shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03, where such amount relates to any event specified in section 18(4) and in FORM GSTR-10, where such amount relates to cancellation of registration. [Rule 44(4)]

(5)       The details furnished in accordance with rule 44(3) shall be duly certified by a practicing chartered accountant or cost accountant. [Rule 44(5)]
How to Claim Input Tax Credit (ITC) on Capital Goods of CGST Act, 2017 GST - Ready Reckoner in India GST is to be Paid on Capital Goods or Plant and Machinery if they are Supplied or Sold Outward after Use [Section 18(6)]

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