Reversal of Common Input Tax Credit

[HITESH DEDHIA]

Reversal of Common Input Tax Credit under GST is required for Exempted Supplies/Services. The Company has earned Interest on Loans & Advances/Deposit. Whether Interest income is considered as exempted for Calculation of Proportionate Exempted Sales to Taxable Sales.

[DR.MARIAPPAN GOVINDARAJAN]

In my view it is not. It is applicable to the exempted supply of goods/services or both.

[KASTURI SETHI]

Answer is yes. It is normal/routine interest. The amount of interest earned on account of default payment/delayed payment is taxable under GST. See the definition of taxable value under Section 15 of CGST ACT, 2017

[DR.MARIAPPAN GOVINDARAJAN]

The interest is not on default but on loans and advances.

[KASTURI SETHI]

Dr.Govindarajan Sir,. I agree with you in toto.

[Himansu Sekhar]

Loan is not a service. Interest is also not a supply at all.

[YAGAY and SUN]

Interest does not fall under the category/definition of supply.

AI Summary

Reversal of input tax credit: whether interest on loans counts as exempt supply affects GST credit apportionment.
Reversal of common Input Tax Credit applies to Exempt Supply; the issue is whether interest on loans, advances or deposits counts as exempt receipts for proportionate reversal. Respondents dispute the classification: some treat interest as non-supply and irrelevant to reversal, others treat routine or penal interest as taxable and includible in the taxable value for apportionment, while a third view limits reversal to conventional exempt goods or services.