Summary: Input Tax Credit (ITC) rules, under Section 17 of the GST Act, address how credits should be managed when goods or services are used for both business and non-business purposes, as well as for taxable and exempt supplies. Section 17(1) restricts ITC to the portion used for business purposes, while Section 17(2) limits ITC for mixed use to only the part attributable to taxable supplies, including zero-rated supplies. Rule 42 outlines the method for apportioning ITC. ITC linked to personal use or exempt supplies must be excluded, and only eligible credits are allowed in the electronic credit ledger. For common inputs and input services, credits must be apportioned, with a portion reversed for exempt supplies and personal use. The remaining ITC is then attributed to taxable supplies, including zero-rated supplies. Any ITC related to exempt supplies must be reversed under Section 17(2), ensuring that only credits used for taxable business activities are claimed.
Section 17(1) – Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
Section 17(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Rule 42 – Manner of Apportionment of Input Tax Credit
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-
Details of Input Tax Credit
| Add/Less | Particulars | Eligible ITC |
| Total Input during the year – As per 2B (T) | 100 | |
| Less : | ITC Related to inputs (Goods or services) to be used exclusively for the purposes other than business (e.g. goods/services used for personal purposes). (T1) | 10 |
| Less: | ITC Related to inputs to be used exclusively for the Exempt supplies (T2) | 20 |
| Less: | ITC Related to inputs on which credit is not available – Blocked Credit u/s 17(5). (T3) | 15 |
| C1 | ITC credit credited to the electronic credit ledger. (C1=T-T1-T2-T3) | 55 |
| Less: | ITC Related to inputs intended to be used exclusively for supplies other than exempted but including zero rated supplies (i.e. ITC on Inputs exclusively used for taxable + zero rated supplies). (T4) | 30 |
| C2 | Common Credit – for Both exempt supplies as well as Taxable supplies including Zero Rated Supply. (C2=C1-T4) | 25 |
| D1 | ITC attributable towards exempt supplies. (To be reversed Under Sec. 17(2)) (D1=C2*(E/F)) | 13.33 |
| Available ITC attributable towards Taxable supplies including Zero Rated | 11.67 |
–
| S. No. | Particulars | Amt. |
| E | Aggregate value of exempt supplies during tax period | 80 |
| Aggregate value of Taxable Supplies including Zero rated Supplies during tax period | 70 | |
| F | Total turnover in the State | 150 |
* if No turnover in current tax period, E and F of the last tax period for which the details of such turnover are available
If common inputs and input services (C2) are used partly for business and partly for non-business purposes-
| D2 | If Common Credits – Attributable to non bus. Purposes (D2=C2*5%)
(5% of common credit to be treated as used for personal purpose) |
1.25 |
| K | Remainder of the common credit – Attributable to business purposes | 23.75 |
| C3 | ITC attributable towards Taxable supplies including Zero Rated (C3=C2-(D1+D2)) | 10.42 |
| ITC attributable towards exempt supplies. (To be reversed Under Sec. 17(2)) (D1=C2*(E/F)) | 13.33 |
Author Bio
Sir,
What will be the treatment when exempted by-products are produced which can not be attributable to taxable supplies.
Similarly, what will be the treatment of evaporation losses .
CA Om Prakash Jain s/o J.K.Jain, Jaipur
Tel 9414300730/9462749040
0141-3584043