Manner of determination of input tax credit in respect of inputs or input services and reversal thereof under GST

Rule-42 of CGST Rules 2017

42. Man­ner of deter­mi­na­tion of input tax cred­it in respect of inputs or input ser­vices and rever­sal thereof.- 

(1) The input tax cred­it in respect of inputs or input ser­vices, which attract the pro­vi­sions of sub-sec­tion (1) or sub-sec­tion (2) of sec­tion 17, being part­ly used for the pur­pos­es of busi­ness and part­ly for oth­er pur­pos­es, or part­ly used for effect­ing tax­able sup­plies includ­ing zero rat­ed sup­plies and part­ly for effect­ing exempt sup­plies, shall be attrib­uted to the pur­pos­es of busi­ness or for effect­ing tax­able sup­plies in the fol­low­ing man­ner, namely,-

• the total input tax involved on inputs and input ser­vices in a tax peri­od, be denot­ed as ‘T’;
• the amount of input tax, out of ‘T’, attrib­ut­able to inputs and input ser­vices intend­ed to be used exclu­sive­ly for the pur­pos­es oth­er than busi­ness, be denot­ed as ‘T1’;
• the amount of input tax, out of ‘T’, attrib­ut­able to inputs and input ser­vices intend­ed to be used exclu­sive­ly for effect­ing exempt sup­plies, be denot­ed as ‘T2’;
• the amount of input tax, out of ‘T’, in respect of inputs and input ser­vices on which cred­it is not avail­able under sub-sec­tion (5) of sec­tion 17, be denot­ed as ‘T3’;
• the amount of input tax cred­it cred­it­ed to the elec­tron­ic cred­it ledger of reg­is­tered per­son, be denot­ed as ‘C1’ and cal­cu­lat­ed as-

C1 = T- (T1+T2+T3);

• the amount of input tax cred­it attrib­ut­able to inputs and input ser­vices intend­ed to be used exclu­sive­ly for effect­ing sup­plies oth­er than exempt­ed but includ­ing zero rat­ed sup­plies, be denot­ed as ‘T4’;
• ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be deter­mined and declared by the reg­is­tered per­son at the invoice lev­el in FORM GSTR‑2;
• input tax cred­it left after attri­bu­tion of input tax cred­it under clause (g) shall be called com­mon cred­it, be denot­ed as ‘C2’ and cal­cu­lat­ed as-

C2 = C1- T4;

• the amount of input tax cred­it attrib­ut­able towards exempt sup­plies, be denot­ed as ‘D1’ and cal­cu­lat­ed as-

D1= (E÷F) × C2

where,

‘E’ is the aggre­gate val­ue of exempt sup­plies dur­ing the tax peri­od, and

‘F’ is the total turnover in the State of the reg­is­tered per­son dur­ing the tax period:

Pro­vid­ed that where the reg­is­tered per­son does not have any turnover dur­ing the said tax peri­od or the afore­said infor­ma­tion is not avail­able, the val­ue of ‘E/F’ shall be cal­cu­lat­ed by tak­ing val­ues of ‘E’ and ‘F’ of the last tax peri­od for which the details of such turnover are avail­able, pre­vi­ous to the month dur­ing which the said val­ue of ‘E/F’ is to be calculated;

Expla­na­tion: For the pur­pos­es of this clause, it is here­by clar­i­fied that the aggre­gate val­ue of exempt sup­plies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Sev­enth Sched­ule to the Con­sti­tu­tion and entry 51 and 54 of List II of the said Schedule;

• the amount of cred­it attrib­ut­able to non-busi­ness pur­pos­es if com­mon inputs and input ser­vices are used part­ly for busi­ness and part­ly for non-busi­ness pur­pos­es, be denot­ed as ‘D2’, and shall be equal to five per cent. of C2; and
• the remain­der of the com­mon cred­it shall be the eli­gi­ble input tax cred­it attrib­uted to the pur­pos­es of busi­ness and for effect­ing sup­plies oth­er than exempt­ed sup­plies but includ­ing zero rat­ed sup­plies and shall be denot­ed as ‘C3’, where,-

C3 = C2 - (D1+D2);

• the amount ‘C3’ shall be com­put­ed sep­a­rate­ly for input tax cred­it of cen­tral tax, State tax, Union ter­ri­to­ry tax and inte­grat­ed tax;
• the amount equal to aggre­gate of ‘D1’ and ‘D2’ shall be added to the out­put tax lia­bil­i­ty of the reg­is­tered person:

Pro­vid­ed that where the amount of input tax relat­ing to inputs or input ser­vices used part­ly for the pur­pos­es oth­er than busi­ness and part­ly for effect­ing exempt sup­plies has been iden­ti­fied and seg­re­gat­ed at the invoice lev­el by the reg­is­tered per­son, the same shall be includ­ed in ‘T1’ and ‘T2’ respec­tive­ly, and the remain­ing amount of cred­it on such inputs or input ser­vices shall be includ­ed in ‘T4’.

• The input tax cred­it deter­mined under sub-rule (1) shall be cal­cu­lat­ed final­ly for the finan­cial year before the due date for fur­nish­ing of the return for the month of Sep­tem­ber fol­low­ing the end of the finan­cial year to which such cred­it relates, in the man­ner spec­i­fied in the said sub-rule and-
• where the aggre­gate of the amounts cal­cu­lat­ed final­ly in respect of ‘D1’ and ‘D2’ exceeds the aggre­gate of the amounts deter­mined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be added to the out­put tax lia­bil­i­ty of the reg­is­tered per­son in the month not lat­er than the month of Sep­tem­ber fol­low­ing the end of the finan­cial year to which such cred­it relates and the said per­son shall be liable to pay inter­est on the said excess amount at the rate spec­i­fied in sub-sec­tion (1) of sec­tion 50 for the peri­od start­ing from the first day of April of the suc­ceed­ing finan­cial year till the date of pay­ment; or

where the aggre­gate of the amounts deter­mined under sub-rule (1) in respect of ‘D1’ and ‘D2’ exceeds the aggre­gate of the amounts cal­cu­lat­ed final­ly in respect of ‘D1’ and ‘D2’, such excess amount shall be claimed as cred­it by the reg­is­tered per­son in his return for a month not lat­er than the month of Sep­tem­ber fol­low­ing the end of the finan­cial year to which such cred­it relates.