Accounting Treatment of Ineligible ITC Availed and Utilized | Ind AS Framework

As per section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017, Input Tax Credit (ITC) is generally not available on motor vehicles, except when they are used for further supply, transportation of passengers, or for imparting training on driving. Moreover, if ITC is blocked on any asset under this provision, the amount of ITC blocked should be treated as part of the cost of that asset. In cases where a company incorrectly avails ITC on a blocked credit asset, the company is required to reverse the ITC claim related to the blocked asset. The amount of this reversal of ITC should be added to the cost of the asset. Subsequently, depreciation on such an asset should be calculated based on the adjusted cost after including the reversal of ITC.

In this story, we have discussed the accounting treatment where the company wrongly availed and utilized the ITC by a company, which came to light during an audit conducted by the statutory auditor.

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