Section 17(2) Rule 42

[Komal Agarwal]

While filling GST annual return for FY 2019-20 assesse shown PPF interest, FDR interest of Rs 3,00,000 as exempt income in Table 5D of GSTR-9. Assesse shown taxable Income of Rs 3 crore in GSTR-9 in table 4. Now the GST department issued DRC-01A notice for reversal of proportionate ITC Rs 32,400/- (i.e. 1% of total ITC Rs 32,40,000/-) as per section 17(2) read with rule 42

Q1 : Whether we have to pay the proportionate ITC or any remedy available to us. Please provide reference of Section, Rule, Case law.

Q2: Normally we do not report the PPF interest and bank interest income in GSTR-1. Is it compulsory to show bank interest in GSTR-9.

Thanks in advance

[Sadanand Bulbule]

Dear Sir 

Section 17[2] speaks of also exempt supplies and not exempt income. Plz elaborate the query

[Amit Agrawal]

No reversal of ITC is required u/s 17(2) read with rule 42 & 43 against PPF interest & FDR Interest earned by a tax-payer (other than 'a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances')  in view of explanation (1)(b) given under Rule 43 of the CGST Rules, 2017.

In above-said explanation, it is clarified that the aggregate value of exempt supplies for such tax-payer shall exclude 'the value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount' for the purposes of rule 42 & 43. 

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Komal Agarwal Ji,

(i) I concur with the views of Sh. Sadanand Bulbule Ji, Sir. For correct and concrete reply, more details are required.

Answer to query no. 1 : Every kind of interest is not exempt supply for the purpose of Rules 42 & 43.. Read Explanation [1] (b) below Rule 43 (5) (applicable to Rules 42 & 43 both). You are required to focus on exceptions i.e. What is to be excluded and what is not to be excluded. Every kind of exempt supply is not to be included for the purpose of reversal under Rules 42 & 43. Also read Explanation-3 of Rule 43.

So elaborate your query after going through the Explanations.

Answer to query no.2 : YES.

[Shilpi Jain]

You would have to disclose it as exempt income. However, as per explanation after rule 43 no requirement of reversal of ITC>

[Padmanathan KV]

I agree with the views of Ld friend Amit Ji. No reversal is required in light of the explanation there to. I have got a fav order in adjudication level itself.

AI Summary

No ITC Reversal Needed for Interest Income Under Section 17(2), Rule 42 & 43, Unless You're a Financial Institution. An individual inquired about the requirement to reverse proportionate Input Tax Credit (ITC) under GST regulations after showing exempt income, such as PPF and FDR interest, in their annual return. The GST department issued a notice for ITC reversal. Respondents clarified that under Section 17(2) and Rule 42 & 43 of the CGST Rules, no reversal is needed for interest income unless the taxpayer is a financial institution. They advised reviewing specific rule explanations and confirmed that reporting such income in GSTR-9 is necessary. Further details were requested for a more precise response.