Circular 240/2024: Cash Ledger Only, and No ITC Reversal

Circular 240 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Two questions had followed section 9(5) since it began to matter commercially. Can the platform use its credit balance to pay the deemed-supplier tax? And does that tax turn the platform's other credits into partly reversible ones? A December 2024 circular answered both — one against the taxpayer, one in its favour.

Circular No. 240/2024-GST dated 30.12.2024 clarifies that the ECO must discharge its entire section 9(5) liability through the electronic cash ledger only — the Handbook notes that this is a clarification, since "there is nothing in the Act which restricts the utilisation of ITC". The same circular confirms that deemed supplies under section 9(5) are not treated as exempt supplies for proportionate reversal: no reversal under rule 42 or 43 read with section 17(1) or 17(2) is required, because the ECO's credits relate to its own taxable outward supplies — commission and platform fees.

Question one: can ITC pay the 9(5) liability?

The Handbook is candid about the legal position before the circular:

"Though there is nothing in the Act which restricts the utilisation of ITC, it has been clarified through Circular 240 of 2024 dated 30th December 2024 – CGST that the ECO will have to discharge its entire tax liability payable as per Section 9(5) of the CGST Act, 2017 through the Electronic Cash ledger only."

That framing matters. Unlike reverse charge — where rule 85(4) expressly requires the cash ledger — section 9(5) has no equivalent rule. The restriction arrives by clarification.

And the commercial consequence is significant. Section 9(5) makes the ECO liable on the full value of the service, not on its commission. A food-delivery platform's 9(5) liability is computed on the whole basket price; a ride-hailing platform's, on the whole fare. Paying that entirely in cash, month after month, is a permanent working-capital commitment — the Handbook flags "a direct impact on the working capital and cash flow management of the aggregator."

The credit is not lost, only redirected. It remains available against the ECO's own output tax on commission, platform fees and convenience fees charged to vendors and customers.

Question two: do 9(5) supplies force a credit reversal?

This was the more dangerous question, because an adverse answer would have made a large part of every aggregator's credit permanently unusable.

The argument for reversal ran like this. The ECO pays tax on 9(5) supplies but takes no credit of it. If those supplies were treated as exempt supplies in the ECO's hands for the purposes of section 17(2), then the ECO's common inputs — marketing, platform maintenance, technology — would have to be apportioned under rules 42 and 43, and the portion attributable to 9(5) supplies reversed.

The circular rejects it. As the Handbook records:

"the ITC is received by the ECO for inward supplies availed by it for providing taxable outward supplies on its own account like Platform fees or Commission etc. Hence the same has no bearing on the supplies made by the service providers for which tax obligations are met by the ECO. Therefore, no reversal of ITC under Rules 42 or 43 read with Section 17(1) or 17(2) would be required for the deemed supplies made by the ECO."

The reasoning is the same one that underlies the whole of section 9(5). The ECO is not the recipient of the underlying service and not, in substance, its supplier — it is a deemed supplier for collection purposes. Its own inputs are consumed in making its own supplies. The two do not meet.

This confirms and extends the earlier position. Circular No. 167/23/2021-GST had already said, in the restaurant context, that the ECO need not reverse ITC on inputs used to facilitate 9(5) supplies. Circular 240 states it generally.

The two circulars together

What this means in the ledger

Three streams, kept separate:

Stream one — the 9(5) liability. Computed on the full value of the notified service. Reported as the ECO's own outward supply. Paid from the cash ledger. No credit of it, ever.

Stream two — the ECO's own outward supplies. Commission, listing fees, advertising, logistics charges, convenience fees. Ordinary output tax, settled from the credit ledger in the normal way.

Stream three — the ECO's inward supplies. Marketing, technology, platform maintenance, professional fees. Full credit, no apportionment, because there is no exempt supply in the ECO's hands to apportion against.

The error to avoid is treating stream one as an inward supply. The Handbook is explicit that 9(5) supplies are not to be reported as inward supply liable to reverse charge in GSTR-3B, because the ECO is not the recipient and these are not its input services — "the payment of taxes on behalf of the restaurants and other service providers do not entitle the ECOs to claim ITC for the same."

An ECO that books the 9(5) liability in Table 3.1(d) and claims credit in Table 4(A)(3) has claimed a credit that does not exist.

Key takeaways

• Circular No. 240/2024-GST dated 30.12.2024: the section 9(5) liability must be paid entirely from the electronic cash ledger.
• The Handbook notes the Act itself contains no such restriction — the requirement arrives by clarification, unlike reverse charge where rule 85(4) says so expressly.
• Because 9(5) liability is on the full value of the service, the cash commitment is substantial.
• No reversal under rules 42 or 43 is required for deemed supplies — the ECO's credits relate to its own taxable supplies.
• Circular No. 167/23/2021-GST had said the same for restaurant services; Circular 240 generalises it.
• The ECO's ITC remains fully usable against commission, platform and convenience fees.
• Never report 9(5) supplies as inward supply liable to reverse charge — the ECO is not the recipient.

Read next

• Section 9(5): The Deemed Supplier, and Why It Is Not Reverse Charge
• Marketplace, Inventory and Aggregator: Three Models, Three GST Outcomes
• Section 52 TCS: Rate, Net Value and When to Collect

Disclaimer: Positions stated as on 5 September 2026, based on section 9(5), sections 17(1) and 17(2) and rules 42 and 43 of the CGST Act and Rules, 2017, and Circulars No. 240/2024-GST dated 30 December 2024 and 167/23/2021-GST dated 17 December 2021, as reproduced in the ICAI Handbook on E-Commerce Operators under GST (updated to 15 December 2025).