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

ITC reversal on exempt derivatives: use prescribed proportion of sale value; may be no reversal if only exempt supplies. Whether trading income from derivatives (options and futures) is treated as exempt supply for input tax credit reversal and how to value such supply is questioned. The suggested operative approach is to apply the prescribed proportion of sale value to quantify exempt supply for reversal calculations; alternatively, an interpretation is noted that if a registered person's only exempt supplies are securities-related, reversal might not be required.