Availing ITC however outward is exempted

[Rajesh Kumar]

Sir/Madam

Please enlight when party is availing ITC however outward supplies are exempted.

By this way, ITC is getting accumulated as No duty is payable .

1) Is there any provision which restricts the availing of ITC this way ? Or

2) is there any time limit till then, the said ITC to be reversed ?

We know that availing of ITC is not penal-able till its utilisation. As per department, party should not avail ITC when its outward supplies are exempted and to reverse the same under section 74(5) of the CGST Act, 2017.

AI Summary

Input tax credit eligibility: wrongly availed credit on exempt supplies can trigger demand and reversal obligations.
Where outward supplies are exempt, input tax credit (ITC) is not eligible except in limited scenarios such as exports; taking ITC against exempt supplies is erroneous under Rule 42 and relevant ITC exclusions. Tax authorities may initiate demand proceedings and levy penalties for wrongly availed ITC even if unutilised, with interest rules applying differently to utilised credit. In real estate, periodic reversals under Section 17(2) and rules are required, typically monthly with final reconciliation at project completion.