Where goods or services (or both) that were earlier taxable have now become exempt, suppliers must take note of the provisions of Section 18(4) of the CGST Act, 2017.
• Reversal of ITC: Any input tax credit (ITC) availed earlier on such supplies cannot be retained once they become exempt.
• The registered person is required to pay back (reverse) ITC equivalent to:
1. Inputs held in stock
2. Inputs contained in semi-finished goods
3. Inputs contained in finished goods
4. Capital goods – ITC to be reversed on a proportionate basis considering the useful life (5 years).
• Mode of payment: The reversal amount must be discharged by debiting the Electronic Credit Ledger (if balance is available) or through the Electronic Cash Ledger.
