As per Section 17 (1) of CGST Act, a registered person can take input tax credit on inputs or input services or both only when they are used for his business purpose only. If they are used partly for business purpose and partly for other purposes, then the input tax credit is available only to the extent that is used for business purpose.
As per Section 17 (2) of CGST Act, when a registered person uses inputs and input services partly for effecting taxable supplies including zero rated supplies and partly for effecting exempted supplies, he is entitled to the input tax credit to the extent of usage of inputs and input services for providing taxable supplies including zero rated supplies.
Page Contents
- Determination of Eligible and Reversal of Ineligible Credit
- ITC credited to Electronic credit ledger and Common credit is calculated as below:
- Calculation of Input tax credit for exempt supplies is calculated as below (D1):
- Calculation of ITC of Non-business purpose (D2):
- Calculation of Remaining Eligible Input tax credit of the common credit (C3):
Determination of Eligible and Reversal of Ineligible Credit
As per Rule 42 of CGST Rules, when the inputs or input services are used partly for business purpose and partly for other purposes or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, the input tax credit is eligible that is used only for business purpose or effecting taxable supplies calculated as below:
ITC credited to Electronic credit ledger and Common credit is calculated as below:
| Total Input tax | T |
| Less: Input tax related to inputs and input services exclusively used for purpose other than business | T1 |
| Less: Input tax related to inputs and input services exclusively used for effecting exempt supplies | T2 |
| Less: Blocked credit as per section 17(5) of CGST Act | T3 |
| ITC credited to Electronic Credit Ledger | C1 |
| Less: Input tax credit related to inputs and input services exclusively used for effecting supplies including zero rated supplies other than exempt supplies | T4 |
| Common Credit | C2 |
Note: T1, T2, T3 and T4 shall be determined and declared by the registered person at the invoice level.
Calculation of Input tax credit for exempt supplies is calculated as below (D1):
| D1 = | Aggregate value of exempt supplies during the tax period (E) | X | C2 |
| Total turnover in the State of the registered person during the tax period (F) |
Note: Any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51and 54 of List II of the said schedule is excluded from the aggregate value of exempt supplies and the total turnover.
Calculation of ITC of Non-business purpose (D2):
When the common inputs and input services are used partly for business and partly for non-business purpose, the input tax credit of non-business purpose is calculated at 5% of common credit, denoted ‘D2’.
Calculation of Remaining Eligible Input tax credit of the common credit (C3):
The remaining eligible input tax credit of common credit attributed to the purpose of business and for effecting supplies including zero rated supplies other than exempted supplies is denoted ‘C3’ and calculated as below:
| Common Credit | C2 |
| Less: Input tax credit attributable to exempt supplies | D1 |
| Less: Input tax credit attributable to non-business purpose | D2 |
| Remaining Eligible Input tax credit | C3 |
Important Points:
- The credit ‘C3’ shall be computed separately for CGST, SGST, IGST and UTGST
- The ineligible input tax credit calculated as ‘D1’ and ‘D2’ shall be added to the output tax liability of the registered person
- This input tax credit determined as per this section for the financial year before the due date for furnishing return for the month of
September following end of the financial year
Example Calculation:
| Particulars | Amount | |
| Total Input tax Credit | T | 1,00,000 |
| Less: Input tax related to inputs and input services exclusively used for purpose other than business | T1 | 10,000 |
| Less: Input tax related to inputs and input services exclusively used for effecting exempt supplies | T2 | 9,500 |
| Less: Blocked credit as per section 17(5) of CGST Act | T3 | 7,500 |
| ITC credited to Electronic Credit Ledger | C1 | 73,000 |
| Less: Input tax credit related to inputs and input services exclusively used for effecting supplies including zero rated supplies other than exempt supplies | T4 | 62,500 |
| Common Credit | C2 | 10,500 |
| Particulars | Amount | ||||||
| Common Credit | C2 | 10,500 | |||||
| Less: Input tax credit attributable to exempt supplies | D1 | 2,625 | 2625 (D1) = | 2,50,000 | X | 10500 (C2) | Refer formula for D1 |
| 10,00,000 | |||||||
| Less: Input tax credit attributable to non-business purpose | D2 | 525 | 525 (D2) = | 5 | X | 10500 (C2) | Refer formula for D2 |
| 100 | |||||||
| Remaining Eligible Input tax credit | C3 | 7,350 |
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