Every chemist has the carton. The one at the back with the strips and syrups past their expiry date, waiting for someone to decide what happens to them. A kirana store has its own version: the biscuits gone soft, the leaked oil pouch, the bag of atta a rat found first. However it happens, the ending is the same. The goods leave your shop without ever crossing the counter.
Now the part almost nobody explains to a shopkeeper. When you bought that stock you paid GST to your supplier, and you claimed that tax back as input tax credit against the tax on your sales. The claim was perfectly legal at the time, because the goods were bought to be sold. The day you write them off, the basis for the claim disappears, and the law wants the credit returned. Skip this and nothing happens immediately. The gap simply sits inside returns you have already filed, until someone with a departmental login and a reason goes looking.
What the law actually says
Section 17(5) of the CGST Act is the list of things on which input tax credit is blocked. Clause (h) covers exactly our carton: goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Credit exists because your purchases feed taxable sales. Goods that meet one of those five fates never feed a sale, so the credit on them was never really yours to keep. If you claimed it, and every regular dealer claims it the month the purchase is filed, you reverse it when the write-off happens.
How much? The tax you actually claimed, worked out batch by batch from the purchase invoices. Take a 12 per cent item: 24 bottles of syrup bought at ₹80 each. Purchase value ₹1,920, GST ₹230.40, claimed as ₹115.20 CGST and ₹115.20 SGST. If all 24 expire unsold, ₹230.40 goes back, same heads, same split. The MRP printed on the bottle plays no part in this sum. You reverse what you claimed, and you claimed tax on your purchase price.
Where it goes in the return, exactly
This used to be genuinely confusing, so CBIC settled it in Circular No. 170/02/2022-GST dated 6 July 2022. Para 4.4 says the reversal of credit that is ineligible under section 17(5) is to be made under Table 4(B) of GSTR-3B, and expressly not under Table 4(D). Within Table 4(B), the circular's procedure puts section 17(5) amounts in 4(B)(1): the bucket for reversals that are absolute and cannot be reclaimed, alongside rules 38, 42 and 43. Table 4(B)(2) is for the other kind, the reversals you can take back later, such as rule 37's 180-day payment rule. A write-off is not that kind. Once reversed, it stays reversed.
Do it in the GSTR-3B for the month of the write-off. There is no cheaper, later slot: if the department treats credit left standing as wrongly availed and utilised, interest follows under section 50(3), at 18 per cent (Notification 09/2022-Central Tax dated 5 July 2022, which substituted 18% for the earlier 24%).
Chemists: returning expiry up the chain is a different transaction
Most medical stores do not destroy expired medicine themselves. It goes back to the stockist, who sends it up towards the manufacturer. CBIC wrote a circular specifically for this flow: Circular No. 72/46/2018-GST dated 26 October 2018. It gives two routes, and your side of the entry depends on which one your stockist uses.
- Return as a fresh supply. You, a registered dealer, issue a tax invoice for the return, and the circular allows the value to be the price you originally bought at. You charge GST on that invoice like any sale, and the stockist claims it onwards. Your original credit needs no separate reversal here, because you have made a taxable supply of the goods back.
- Return against a credit note. You send the goods on a delivery challan, and the stockist issues a credit note under section 34. Here is the catch: the circular lets him adjust his tax liability only if you have reversed the credit you took on those goods, or never took it. His paperwork depends on your reversal. And section 34(2), as amended by the Finance Act 2022, gives the tax adjustment a deadline: 30 November following the end of the financial year of the original supply. Expiry returns of old stock often cross that line, in which case the credit note becomes purely commercial and no tax adjusts.
Whoever finally destroys the goods does the section 17(5)(h) reversal at their end; the circular spells that out for the manufacturer in both routes. It also notes the same procedure can apply to goods returned for other reasons, so a kirana sending back a damaged carton sits in the same two routes. Keep the challan and the credit note stapled to your write-off record. When your purchase and return documents disagree with the stockist's, the smaller party rarely wins the argument.
Free samples and "buy one get one": same clause, opposite answers
Section 17(5)(h) also names gifts and free samples, and CBIC clarified the promotional cases in Circular No. 92/11/2019-GST dated 7 March 2019. Goods you give away for nothing, a strip handed to a doctor, a Diwali gift pack for regular customers, are not a supply and carry no tax, but the input credit on them is blocked and must be reversed.
A "buy one get one free" offer is the opposite. The circular says it is not a free supply at all, but two supplies for a single price: two goods for the price of one. Tax applies on the price actually charged, and the input credit stays fully available. Notice what decides the outcome: the bill. Both soaps on one invoice at one price keeps every rupee of credit. The same second soap handed over with no bill is a gift, and its credit is gone. For a pharmacy or an FMCG counter running offers every week, that is a billing habit worth fixing today.
The record the law already expects you to keep
Rule 56(2) of the CGST Rules requires every registered person (composition dealers excepted) to keep stock accounts showing opening balance, receipt, supply, and, in as many words, the goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample, along with the balance of stock. The write-off column is not an accounting nicety. It is named in the rule.
Section 35(6) is the stick behind it. Goods you cannot account for can be taxed as if you had sold them, recovered under section 73 or 74. Note the opening words of that sub-section, though: it operates subject to clause (h) of section 17(5). A recorded write-off with its credit reversed is the lawful exit. Unexplained shrinkage, on the other hand, looks to an officer like unbilled sales, and that conversation costs far more than any reversal.
Why your software never warned you
Here is the uncomfortable truth about billing software, ours included. Most packages treat expiry as a report and damage as a stock adjustment. You run the expiry report, sigh, and adjust the quantity down. The inventory value drops, the shelves match the computer again, and everything feels tidy. But no transaction was posted. Nothing recorded why the stock left, nothing computed the credit riding on it, and nothing warned you that a GSTR-3B filed months ago still carries that credit as claimed. The write-off happened in the real world and never in the tax world.
To be plain about our own product: Layerdots ERP tracks stock batch-wise and shows a medical store exactly what is nearing expiry, but at the time of writing it has no write-off transaction either; the disposal entry and its reversal working are on our list, and we would rather say so here than have you assume it is handled. Until your software, whichever it is, posts write-offs as real transactions, do it by hand:
- Once a month, pull the expired and damaged goods off the shelf and list them: item, batch, quantity, and the purchase invoice each came in on.
- Enter the list in your stock records with the date and the reason. That is your Rule 56(2) entry, and your answer if an officer asks where the stock went.
- Work out the tax you claimed on those purchases, split by CGST, SGST and IGST.
- Send the figure to your CA for Table 4(B)(1) of that month's GSTR-3B.
- If you are a chemist returning expiry to the stockist, agree the route first, fresh invoice or credit note, and file the challan and credit note with the list.
Twenty minutes a month. The alternative is explaining three years of quiet write-offs to an officer who has your purchase data in front of him, the way a missing invoice number invites a question you would rather answer from a log than from memory.
Common questions
Do I reverse GST on the MRP or on my purchase price?
On the tax you actually claimed, which was charged on your purchase price. MRP plays no part.
Work batch by batch from the purchase invoices and keep the head-wise split.
I sold damaged stock at a discount instead of throwing it away. Do I reverse?
No. A sale is a sale: charge GST on whatever price you actually charged, and your credit stays.
Section 17(5)(h) is about goods that never get sold at all.
The goods were insured and the insurer paid. Still reverse?
Yes. The clause has no exception for insured losses; destroyed goods mean the credit goes back
whether or not a claim was paid. How the tax element figures in your insurance claim is a
separate question for your insurer and your CA.
My books show a value write-down, but the goods are still on the shelf and saleable.
This is a genuinely grey area. The Act says "written off" without defining how partial
write-downs in the books are treated, and we have not found a circular that settles it for a
trader's stock. If this is your situation, put the question to your CA before filing rather than
guessing in either direction.
This article is general information for shop owners, not legal or tax advice. The write-off treatment for your particular goods, and whether interest applies to a late reversal, are each worth one direct question to your CA. Reading this page is preparation for that conversation, not a replacement for it.