ITC on inputs in stock when exempted supply become taxable

Where an exempt supply of goods and/or services by a registered person becomes a taxable supply, such person shall be entitled to take;

  • credit of input tax in respect of inputs held in stock relatable to such exempt supply; and 
  • inputs contained in semi finished or finished goods held in stock relatable to such exempt supply;
  • Inputs on capital goods exclusively used for such exempt supply 

on the day immediately preceding the date from which such supply becomes taxable. 

However, in case of capital goods, credit shall be reduced by 5% per quarter of a year or part of the year from the date of invoice.

A registered person shall not be entitled to take input tax credit in respect of supply of goods and/or services after the expiry of 1 year from the date of issue of tax invoice relating to such supply.

Declaration and return to be filed

ITC claimed shall be verified with the corresponding details furnished by the corresponding supplier.

As per rule 40, the registered person shall within a period of 30 days from the date of becoming eligible to avail input tax credit u/s 18(1), or within such further period as may be extended by the commissioner by a notification in this behalf, shall make a declaration electronically, on the common portal in Form GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid.

The return in form GST ITC-01 shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date from which the supplies made by the registered person becomes taxable.

Details in the return furnished on the common portal in Form GST ITC-01 shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of CGST, SGST, UTGST and IGST exceeds 2,00,000 rupees.

The input tax credit claimed chall be verified with the corresponding details furnished by the corresponding supplier in Form GSTR-1 or as the case may be, in Form GSTR-4, on the common portal.

The amount of credit in the case of supply of capital goods or plant and machinery for the purpose of 18(6), shall be calculated by reducing the input tax on the said goods at the rate of 5% point for every quarter or part thereof from the date of the issue of the invoice for such goods.

What happens when taxable supplies are exempted

Where the goods and/or services supplied by the registered taxable person 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 if finished goods held in stock; And
  • On capital goods reduced by 5% per quarter per year or part of the year;

On the day immediately preceding the date of exercising such option or, as the case may be, the date of such exemption.

After payment of such amount, the balance in input tax credit ledger, if any, lying in electronic credit ledger shall lapse.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.