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.

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:

  1. The credit ‘C3’ shall be computed separately for CGST, SGST, IGST and UTGST
  2. The ineligible input tax credit calculated as ‘D1’ and ‘D2’ shall be added to the output tax liability of the registered person
  3. 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

Author Bio

Qualification: Post Graduate
Company: N/A
Location: Chennai, Tamil Nadu, IN
Member Since: 07 Apr 2018 | Total Posts: 16
Post Graduate in Commerce having 14+ years of experience in Accounting & Taxation. Contact Email: uday.gstguide@gmail.com View Full Profile

My Published Posts

More Under Goods and Services Tax

Posted Under

Category : Goods and Services Tax (7612)
Type : Articles (17813)
Tags : goods and services tax (6086) GST (5687) input tax credit (154)

Leave a Reply

Your email address will not be published. Required fields are marked *