AI Accounting Advisor – Treatment of Blocked GST in Prepaid Expenses (Ind AS Logic)
Problem
A company pays ₹1,20,000 for an annual insurance premium covering 12 months, and the invoice includes GST of ₹18,000. Since the company is engaged in exempt output services, the GST amount is not eligible for input tax credit under Section 17(5). At year-end, the accountant must determine the correct accounting treatment for this ineligible GST portion. The specific questions to be resolved are: Should the ₹18,000 ineligible GST be expensed immediately under Insurance or under Tax Expense (Rates & Taxes)? Or should the GST portion be amortized over the same 12-month period as the prepaid insurance? If amortized, should it be grouped with Insurance Expense or shown separately as Tax Expense Amortization? This prompt helps the user determine the correct accounting treatment under Ind AS/IGAAP and ensures proper classification, amortization, and presentation.
Prompt Input
Provide the following details of the prepaid expense: Total prepaid amount: ₹1,20,000 (annual insurance) GST amount not eligible for ITC: ₹18,000 Duration of prepaid period: 12 months Then specify your question, for example: “Should the ineligible GST be expensed immediately under the same head (Insurance) or under ‘Tax Expense’ (Rates & Taxes and not Income Tax)? Or should the GST portion be amortized over the same 12-month period as the prepaid expense? If amortized, should it be grouped with the Insurance expense or shown separately as ‘Tax Expense Amortization’?”
Prompt Output
Correct monthly amortization treatment for prepaid insurance including ineligible GST, with proper classification under Insurance Expense and presentation of the prepaid balance.