Adit Shah

Adit Shah

Reversals under GST for Inputs and Capital goods if used for providing partly taxable and partly exempt supplies

Reversal under Rule 42

Under Rule 42 a registered person has to reverse the portion of the input tax credit availed attributable to its exempt supplies. A formula therein has been prescribed for such reversal

First we will have to calculate the common credit as below:                

Particulars Amount
Total ITC Availed during the year

 

XXX
Less: ITC directly attributable to exempt supplies

 

XX
Less: Ineligible ITC as per Sec 17(5) XX
Less: Inputs used exclusively for Non business purposes. XX
Net ITC XX

After deriving the Net ITC as per the above formula , the ITC to be reversed shall be reversed proportionately as per the following formula:

Where Aggregate Turnover of exempt supplies shall also include sale of land and sale of building.

(Aggregate Turnover of exempt supplies*Net ITC)/(Total Aggregate turnover (Including exempt supplies,zero rated supplies,Non GST Supplies) 

Further where  the inputs have been used for partly for business and partly for non business purposes they shall be calculated as below:

Inputs for Non Business Purpose: Net ITC * 5%

Hence the total ITC to be reversed shall be as below:

Net ITC + Inputs for Non Business purpose 

Reversal under Rule 43

Under Rule 43, a registered person has to reverse the input tax credit availed on capital goods as per the prescribed formula. We will have to follow the following few simple steps for effective reversal

Particulars Amount
Total ITC Availed during the year on Capital goods

 

XXX
Less: ITC directly attributable to exempt supplies

 

XX
Less: ITC directly  attributable to other than exempt supplies but will include zero rated supplies XX
Net ITC (A) XX

Note: In some cases where the capital goods were earlier used to make exempt supplies but now are being used to make taxable supplies, the Value of (A) shall be reduced by 5% points for every quarter to be credited to the electronic credit ledger. The quarter shall be calculated for the amount of time such Capital goods were used for making Exempt supplies.

The Aggregate amount of (A) shall be said to be common credit. For the purposes of reversal , the ITC attributable to capital goods for one tax period shall be calculated as :

Net Input tax Credit availed on Capital Goods =

(Aggregate Input tax paid on Capital Goods (A))/60

Where the denominator 60 is deemed to be the useful life of the capital goods as per Ruule 43.

The reversal to be made shall be calculated as follows:

(Aggregate Turnover of exempt supplies*Net Input Tax Credit on Capital Goods)/{Total Aggregate turnover (Including exempt supplies,zero rated supplies and Non GST Supplies)}

Author Bio

Qualification: CA in Practice
Company: Ajay Shah & Co.
Location: MUMBAI, Maharashtra, IN
Member Since: 06 May 2019 | Total Posts: 1

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