Question ID :
33801
GST on Prepaid expenses
We claim input GST on all insurance expenses and long term expenses. As these expenses are paid for long period, we recognize them as prepaid expense.Is there any need to reverse GST on these prepaid expenses?
Posted by
Harsh Jain
on
Sep 08, 2018
Filed Under
GST
There is no need for any ITC reversal on prepaid expenses, since the definition of input/input service as defined u/s 2(59) & 2(60) respectively, means any goods/services "used or intended to be used" by a supplier in the course or furtherance of business. Also, none of the sections/rules of CGST Act/Rules warrants such reversal.
Posted by
Rishabh Mishra on
Sep 12, 2018
Answer ID :
73960
One of the conditions for claiming input tax credit is that the underlying goods or services must be 'received'. In case of long-term expenses, deferment due to matching concept is different from admission of pro-rata delivery of goods or services. It is important to see whether the above condition is satisfied or not. If satisfied, credit is available. If not, credit is not available (at least to extent it is deferred).
A good test might be - in the event of cancellation of the said contract, is any part of the amount paid refunded or not as per terms of contact?
If nothing will be refunded, then credit may be availed as the supply is complete although there are some continuing obligations to be performed over a period of time.
If something will be refunded, then it indicates that the full extent of goods or services are not received at the time of payment. As such, the condition in section 16(2)(b) is not satisfied. And claiming full extent of input tax credit may be incorrect.
Also, time limit prescribed under 16(4) comes into play and where credit is not claimed within Oct 20, 201X+1 then credit will be lost permanently. Therefore, you may need to revise the duration of such long-term cancellable contracts to be fully completed (by receipt of goods or services) before Sept 201X+1.
Posted by
CA. JATIN CHRISTOPHER A on
Sep 17, 2018