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Rule 42 of Central Goods and Services Tax (CGST) Rules, 2017 relates to Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. In this Article author tries to explain provisions of rule of 42 of CGST Rules 2017 with the help of Practical examples.
| State where goods to be supplied by ABC | Punjab | |
| State where Cenvat of Input Tax to be accumulated | Punjab | |
| Input Taxes of which credit to be accumulated | Central GST, State GST & Integrated Goods & Service Tax | |
| Provisions of Rule 42 | Example | |
| (a) total input tax involved on inputs and input services in a tax period, be denoted as ‘T’; | Tax Period | April’2018 |
| Amount of input tax involved in inputs (CGST) | 2,45,00,000 | |
| Amount of input tax involved in input services(CGST) | 18,45,00,000 | |
| Total Input Tax as denoted as T | 20,90,00,000 | |
| (b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for purposes other than business, be denoted as ‘T1’; | The amount of input tax of inputs and input services intended to be used exclusively for purposes other than business, be denoted as ‘T1’; | 12,46,800 |
| (c) 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 of inputs and input services intended to be used exclusively for effecting exempt supplies, be denoted as ‘T2’; | 1,56,780 |
| d) the amount of input tax, out of ‘T’, in respect of inputs on which credit is not available under sub-section (5) of section 17 ( Negative list of Input Tax Credit) , be denoted as ‘T3’; | The amount of input tax, of inputs on which credit is not available under sub-section (5) of section 17, be denoted as ‘T3’; | 4,80,160 |
| e) 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) | 20,71,16,260 |
| (f) the amount of input tax credit attributable to inputs and input services used exclusively in or in relation to taxable supplies including zero rated supplies, be denoted as ‘T4’; | The amount of input tax credit of inputs and input services used exclusively in or in relation to taxable supplies including zero rated supplies, be denoted as ‘T4’; | 2,15,60,780 |
| (g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level in FORM GSTR-2; | ||
| h) 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 | 18,55,55,480 |
| C2 = C1- T4; | ||
| i) The amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and calculated as: | Amount of input tax credit attributable towards exempt supplies ( D1) | 15,75,215.64 |
| D1= (E÷F) × C2 | ||
| where : – | ||
| ‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and | Aggregate value of exempt supplies during the tax period | 25,60,00,000 |
| ‘F’ is the total turnover of the registered person during the tax period | Total turnover of the registered person during the tax period | 30,15,60,00,000 |
| (j) 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 | Amount of Tax Credit (D2) | 92,77,774 |
| (k) the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting taxable supplies including zero rated supplies and shall be denoted as ‘C3’, where,- | Amount of C3 | 17,47,02,490 |
| C3 = C2 – (D1+D2); | ||
| (l) The amount ‘C3’ shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax; | Above mentioned process also apply for State GST & Integrated Goods & Service Tax also. | |
| m) The amount equal to ‘D1’ and ‘D2’ shall be added to the output tax liability of the registered person: | Output liability of Tax Period | 6,57,34,10,000 |
| Amount of D1 | 15,75,216 | |
| Amount of D2 | 92,77,774 | |
| Total Output liability of Tax Period | 6,58,42,62,990 | |
| Disclaimer : In mentioned example , figures & name of Company are notional. | ||
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Thanks for Sharing Information Sir
Gst rule 42 reversal of input tax pls provide the working and rules followed
With regards to rule 42 of apportionment of ITC, if we are exporting goods which are already exempt, whether it is considered as exempt supply or taxable supply (because if we are exporting the goods it is considered as zero rated supply which are in turn are considered as taxable one) ???
This is purely my opinion I am an aspiring CA so please correct me if I am wrong .
Firstly Distinction between exempt and zero rated supply is as follows:
For a “zero-rated good,” the government doesn’t tax its sale but allows credits for the value-added tax paid on inputs. If a good or business is “exempt,” the government doesn’t tax the sale of the good and producers cannot claim a credit for the gst they pay on inputs to produce it.
For Rule 42 T2 includes ITC for exempt supply only
whereas T4 includes ITC for zero rated supply
With regards to rule 42 of apportionment of ITC, if we are exporting goods which are already under exempt category, then for the purpose of Rule 42 whether it is consider as exempt supply or it is consider as taxable supply ( As if it is export then it is zero rate supply and for rule 42 zero rated supply is taxable supply )
Nice information please.
Whether reversal of ITC in respect of unsold flats by a builder on receipt of completion certificate is required to be done under Rule 42 of CGST Rules or there is some other procedure.
Excellent sir u are really doing very good job thanks to your team