Reversal of Input Tax Credit in respect of Inputs or Input services

Reversal of Input Tax Credit in respect of Inputs or Input services


 Note: Taxable supplies above includes Zero Rated Supplies

Input Tax Attributable to Business Purpose, Taxable Supplies and Reversal of inadmisable Credit[Rule 42]

Description
Formula
Total Input Tax on Inputs and Input Services
T
ITC used exclusively for other than business purpose included in T above
T1
ITC used exclusively for exempted supplies included in T above
T2
ITC Credit not allowed as specified under section 17(5) of CGST Act
T3
Amount of ITC credited to the electronic ledger (C1)
C1 = T –(T1+T2+T3)
ITC attributable to inputs and input services used exclusively for other than exempted supplies
T4
Common ITC i.e. input tax credit left after attribution of all input tax credit stated above (C2)
C2 = C1-T4
Aggregate value of Exempted Supplies
E
Total Turnover in the State of the Registered person
F
Common credit attributable towards Exempted Supplies (D1)
D1 = (E/F) x C2
In case common credits are also used for party business and partly non business (D2)
D2 = C2 x 5%
Admissible credit used only for taxable supplies and for business purposes only (C3)
C3 = C2 – (D1+D2)
Amount of ITC to be reversed or amount to be added to output tax liability
D1+D2


Illustration

Total ITC on Inputs & Input Services Rs. 5,00,000 (T)
ITC used exclusively for personal purposes [other than business] Rs. 25,000 (T1)
ITC used exclusively for exempted services Rs. 1,00,000 (T2)
ITC on ineligible inputs such as petrol or diesel Rs. 25,000 (T3)

ITC for exclusively for other than exempted supplies i.e. taxable supplies Rs. 2,25,000 (T4)
Exempted Turnover 1,50,00,000 (E)
Taxable Turnover in the State 5,00,00,000 (F)

Step 1 – Calculate amount of ITC to be credited to Electronic Ledger (C1) i.e. T – (T1+T2+T3)
= 5,00,000 – 25,000 – 1,00,0000 – 25,000
= 3,50,000

Step 2 – Calculate Common Credit (C2) i.e. C1-T4
= 3,50,000 – 2,25,000
= 1,25,000

Step 3 – Calculate Common Credit attributable to Exempted Supplies (D1) i.e. (E/F) x C2
= (1,50,00,000/5,00,00,000) x 1,25,000
= 37,500

Amount to be reversed
Case 1 – where common credit do not involve ITC used for other than Business Purpose
Rs. 37,500 (D1)

Case 2 – where common credits involve ITC used other than business purpose also
Calculate D2 i.e. C2 x 5%
= 1,25,000 x 5%
=6,250

Amount to be reversed is D1+D2
= 37,500+6,250
= 43,750


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