ITC reversal on securities being derivates

[Abhijeet Shah]

Trading income earned on derivates i.e. options and futures would be exempt income for purpose of computing reversal under Rule 42 of CGST Rules. Explanation in CGST Rules provides that for sale of securities, value of exempt supply would 1% of sale value. How should the value of supply be calculated for options and futures transactions?

[Shilpi Jain]

1% of the sale value can be regarded. Any challenge with this?

Further, whether there is any other exempt supply that you are having or this is the only one?

In such a scenario there is a possible interpretation that there is no requirement of reversal of credit.

[Aditya Gondiker]

Shilpiji,

Can you please elaborate on your response as to why the registered person would not be required to reverse credit if he only had exempted supplies in relation to transaction in securities and no other exempted supplies.

Thank you in advance.

AI Summary

Clarification Sought on GST Treatment of Derivative Trading Income and ITC Reversal Under Rule 42 of CGST Rules A query was raised regarding the treatment of trading income from derivatives, such as options and futures, under the Goods and Services Tax (GST) in relation to the reversal of input tax credit (ITC) as per Rule 42 of the CGST Rules. The rules state that the value of exempt supply for securities is 1% of the sale value. One participant suggested that if there are no other exempt supplies, there may be no need to reverse credit. Another participant requested further clarification on why credit reversal would not be necessary if only exempted supplies from securities transactions are involved.