Regarding loss on sale due to fire, Income Tax

[YASH JAIN]

I had purchased the goods from one party & sold to another party for Rs 295000 but fire occured at time of sales and goods destroyed and insurance claim received of Rs 293000 what journal entry passed in books of accounts & how to give impact in GST

Posts / Replies

[YAGAY andSUN]

Sorry to hear about the fire damage — let’s break this down clearly for accounting (journal entry) and GST implications.

🔷 Situation Recap:

• You purchased goods.
• You were in the process of selling them for ₹2,95,000.
• Before the sale was completed, fire destroyed the goods.
• Insurance claim of ₹2,93,000 was received.

✅ 1. Journal Entry in Books of Accounts

Let’s assume:

• Goods were recorded in inventory.
• You had not yet issued a tax invoice (since sale was not completed).
• There may or may not be a partial or full invoice issued (we’ll consider both cases below).

🔸 Entry when Goods are Destroyed:

If goods were destroyed before the sale was booked:

Loss by Fire A/c                Dr.        ₹2,95,000

    To Inventory/Stock A/c              ₹2,95,000

(Being goods destroyed by fire before invoicing)

🔸 Entry for Insurance Claim Received:

Bank A/c                         Dr.        ₹2,93,000

Profit & Loss A/c (Loss)         Dr.        ₹2,000

    To Loss by Fire A/c                   ₹2,95,000

(Being insurance claim received and loss accounted)

✅ 2. Impact in GST

➤ A. If Tax Invoice Was NOT Issued Yet:

• Then no GST liability arises.
• Since no supply (as per Section 7 of CGST Act) has occurred, GST is not applicable.

➤ B. If Tax Invoice WAS Issued (i.e., Sale Accounted):

Then:

1. GST was considered payable, but supply never happened.
2. You need to reverse the GST liability using:

• Credit Note (if sale was booked), or
• File in GSTR-1 and GSTR-3B appropriately.

Example Journal Entry (If Sale Was Recorded):

Sales A/c                             Dr. ₹2,50,000

Output CGST A/c                       Dr. ₹22,500

Output SGST A/c                       Dr. ₹22,500

    To Debtor’s A/c                                ₹2,95,000

(Being reversal of sale and output GST due to destruction)

Reverse Inventory:

Loss by Fire A/c                 Dr. ₹2,95,000

    To Inventory A/c                    ₹2,95,000

Insurance Claim:

Bank A/c                         Dr. ₹2,93,000

Profit & Loss A/c (Loss)         Dr. ₹2,000

    To Loss by Fire A/c                  ₹2,95,000

✅ GST Reporting Summary

Case	GST Impact
No invoice issued	No GST applicable
Invoice issued	Reverse sale and GST via credit note in GSTR-1 and reduce liability in GSTR-3B

💡 Extra Tip:

You cannot claim ITC on goods destroyed by fire, as per Section 17(5)(h) of CGST Act.

If ITC was already claimed on purchase of these goods, you need to reverse the ITC.

Journal Entry to reverse ITC (if already claimed):

Input CGST A/c                 Dr. ₹X

Input SGST A/c                 Dr. ₹X

    To ITC Reversal A/c                ₹2X

(Being ITC reversed on goods destroyed)

[Sadanand Bulbule]

Purposeful reply with illustration.Quite effective.