Important GST Update – ITC Reversal on Rate Reduction / Exemption

 Important GST Update – ITC Reversal on Rate Reduction / Exemption


As per Section 18(4) of the GST Act (clarified in PIB FAQ, 56th GST Council):


🔹 When the GST rate is reduced OR an item becomes exempt,

👉 Many dealers are confused about whether ITC reversal is required on stock lying as on 21st September.

🔹 No refund of ITC will be given in such cases.


💡 Example:

Suppose a dealer has 100 units of an item in stock on 21st Sept.

Earlier GST rate = 18% → ITC availed = ₹18 per unit.

New GST rate (from 22nd Sept) = 5%.

i.e your supply continues to be taxable

👉 No ITC reversal is needed. The ITC already in your electronic credit ledger can be utilised against future GST liabilities.


🚫 Also, no refund will be allowed for excess ITC just because of rate reduction. Inverted duty structure refund is not available in such cases.


👉 However If the item becomes fully exempt, the entire ₹18 ITC per unit must be reversed as per Section 18(4) & Rule 44 on the stock laying as on 21st September 2025 midnight.


📌 Key takeaway:

✔️ Businesses must check their stock carefully.

✔️ Reverse ITC wherever item is exempt.

❌ No refund is allowed for such ITC.

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