Accounting entry of reversal of itc

This query is : Resolved

vin (Querist)
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27 July 2022 Dear Experts,
Suppose we purchased some raw material from vendor and the ITC of the bill did not reflected in GSTR2B till next year sep's return due date. Now I have to reverse the itc in books . When we purchased the material we made this Accounting entry:
Purchase A/c Dr.
Input Igst A/c Dr.
To Vendor
At the time of reversal of ITC.
Purchase A/c Dr.(reversal of itc will increase material cost )
To Input Igst
Am I corrrect?
or some other " General expense" ledger to be debited instead of Purchase A/c at the time of reversal of ITC.
Please suggest.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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06 July 2024 When reversing Input Tax Credit (ITC) in your books due to non-reflection in GSTR-2B, you should adjust the entries appropriately to reflect the correct financial impact. Here’s how you can handle the reversal in your accounting entries:

### Original Purchase Entry (Initial Entry):
When you initially recorded the purchase and ITC:

1. **Purchase Account Dr.**
2. **Input IGST Account Dr.**
- To Vendor Account (Credit)

### Reversal of ITC Entry:
When reversing the ITC due to non-reflection in GSTR-2B:

1. **Input IGST Account Dr.**
- To Purchase Account (Debit)

### Explanation:
- **Input IGST Account Dr.:** This account is debited to reverse the previously claimed ITC.
- **Purchase Account Cr.:** By crediting the Purchase Account, you adjust for the increase in the cost of material.

### Clarification on "General Expense" Ledger:
It’s not typical to use a "General Expense" ledger for this purpose unless the reversal is associated with specific expenses related to the transaction (e.g., penalty or interest due to non-compliance). Generally, reversing ITC would adjust the specific accounts affected by the original transaction (Purchase and Input IGST accounts).

### Additional Considerations:
- Ensure the reversal is documented with reference to the original transaction and the reason for reversal (non-reflection in GSTR-2B).
- Maintain clear records for audit and compliance purposes.
- Verify if any interest or penalty implications apply due to the reversal, and account for these appropriately if necessary.

By following these steps, you ensure that your accounting entries accurately reflect the reversal of Input Tax Credit in response to non-availability in GSTR-2B, aligning with GST regulations and accounting standards.