ITC on Goods Damaged, Destroyed by Fire or Stolen: Complete GST Guide 2025

Introduction

Have your goods ever been lost, destroyed in a fire, or stolen during transport? Situations like these affect not just your stock, but also your tax credits. According to Section 17(5)(h) of the GST Act, you cannot claim or retain ITC on goods that are lost, stolen, destroyed, written off, or given away as free samples. This article breaks down the rule and shows you how to stay compliant.

What Does GST Section 17(5)(h) Mean?

The GST law states:

“Input tax credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

In simpler terms, if your goods are no longer available for business due to any of the reasons above, you must reverse the ITC you claimed earlier.

When You Cannot Avail ITC

Let’s look at a few real-life examples to understand better.

As you can see, GST blocks ITC if the goods are no longer used for sale or manufacturing.

How to Reverse ITC Correctly

To remain compliant with GST, follow these clear and simple steps:

1. Record the Loss

Start by documenting the loss. If there’s a fire, file a fire report. In case of theft, submit an FIR. Internal reports should support the claim if external reports are not available.

2. Calculate ITC on Lost Goods

Refer to purchase invoices and stock records to identify the input tax amount related to the goods lost or destroyed.

3. Reverse in GSTR-3B

Use Table 4(B)(2) of GSTR-3B to declare the reversed amount. Do this in the same month the loss was identified.

4. Pass an Accounting Entry

Use this simple journal entry format:

 Loss of Stock A/c    Dr.  
    To Input Tax Credit (CGST / SGST / IGST)

5. Keep Supporting Evidence

Maintain all related documents—fire reports, police complaints, internal memos, purchase invoices, and reversal workings—for at least five years.

Quick FAQs on ITC Reversal

Q1. If goods are insured, is ITC still blocked?

Yes. You must reverse ITC even if you get compensation from the insurance company. GST rules don’t change based on insurance status.

Q2. Can I reclaim ITC if stolen goods are recovered?

Yes, but only if the goods are in usable condition and added back to your stock. Keep proper records for reclaiming ITC later.

Q3. What about capital goods?

If machinery or other capital goods are destroyed, reverse ITC based on remaining useful life. Use depreciation rates for accurate calculation.

Q4. Are services like insurance or transport also affected?

No. Section 17(5)(h) applies only to goods. You can still claim ITC on input services unless they’re blocked under another section.

Real-World Scenarios

Example 1:
You lose stock worth ₹8 lakh in a warehouse fire. Earlier, you claimed ₹1.44 lakh ITC on raw materials.
👉 You must reverse ₹1.44 lakh in GSTR-3B and maintain fire loss documentation.

Example 2:
Goods worth ₹1.5 lakh are stolen during delivery.
👉 File an FIR and reverse ITC of ₹27,000 (18%) in the same tax month.

Stay Compliant, Stay Prepared

To avoid legal issues and penalties, always:

• Monitor your inventory regularly
• Report any loss or damage immediately
• Reverse ITC without delay
• Maintain all records properly

During GST audits, these records will help you justify your compliance.

Conclusion

To summarize, ITC is not available on goods damaged by fire, stolen, or destroyed. As a business owner, you must act fast to reverse such credit and maintain transparency. Regular reviews, proper documentation, and timely action will keep your GST records in good standing.

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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