Gst on loan payable written off

[deepak gulati]

Sir,

We have a case where loan was taken in pre-gst regime and now the company is going to write off and treat it as income in profit and loss account. Will this be taxable under gst law?

Similarly if we write off some old creditors (pre-gst), it's taxability under gst.

[TANAY GHILDIYAL]

There are two views emerging from the reading of provisions of the GST Act and facts of the matter.

The word activity has a vide meaning and the same is not defined in the act.

In this case, the person writing back the amount is getting the consideration (as the liabilities are written off).

The consideration is for activity of writing back which is covered under the word “disposal”.

These activities are “services” as any activity other than goods is covered under the ambit of the services considering the wide definition of the services under the GST Act.

The write back amount is nothing but income for the person writing back the amount.

In terms of Section 16(2) of CGST Act 2017, if payment is not made within 180 days, amount equal to the ITC needs to pay as outward tax liability.

In such circumstances, the person who is writing back in the books of accounts carries out the activities for consideration and credited to other income or expenses. Therefore is subjected to GST as “Services” under Schedule II of the CGST Act, 2017 i.e. “TO DO AN ACT”.

However, there can be another view that such transactions cannot be treated as Supply on the following grounds

1. Mere accounting entry of write back do not necessarily will be supply,

2. For supply of goods and services there need to be “supplier” as well as “recipient”

3. There is no recipient in this case, as the definition of the recipient states that “the recipient is the one who has obligation to pay the consideration”

4. In write back cases, the recipient i.e. vendor may not know details of write back by the company.

5. Further even after write back the company may decide to honour the payment to the vendor.

6. In other words, the write back is books of account do not give finality to the transaction.

7. As per Section 16 (2) of the CGST Act, 2017 in case of non-payment to the supplier, ITC needs to be reversed. Further GST on the same amount will lead to double taxation.

Opinion :- In ur particular case since the loan or the creditor was of pre GST period so no question of payment within 180 days and treatment of ITC gets in question but for the creditors it is advisable to pay the ITC (if availed ) as outward tax liability to avoid any further litigation. Further on need to treat the same taxable under GST Law

Tanay Ghildiyal - 9873938771

[KASTURI SETHI]

In this scenario, no tax liability arises under GST.

[Ganeshan Kalyani]

I agree with the views of Sri Kasturi Sir.

AI Summary

GST Implications on Writing Off Pre-GST Loans: Are They Taxable? Differing Opinions on Service Classification and ITC Reversal. A query was raised about the GST implications of writing off loans and old creditors taken before the GST regime, and whether such write-offs, treated as income in the profit and loss account, are taxable under GST law. One opinion suggested these activities could be considered services under GST, requiring tax payment due to the act of writing back liabilities. Conversely, another opinion argued that such write-offs do not constitute a supply since there is no recipient, and thus no GST liability arises. It is advised to reverse ITC for creditors to avoid litigation.