Apportionment of credit on inputs and input services
A person may be engaged in supply of exempt and taxable supplies. In such a scenario, he will not be eligible to claim full input tax credit on inputs and input services. The draft ITC rules provide a detailed procedure to compute the input tax credit entitlement of such person. The following chart explains the procedure in a simplified way.
The following calculation is to be made on monthly basis and separately for CGST, SGST, UTGST and IGST.
| Step-1 | Total input tax involved on inputs and input services in a tax period (i.e. a month |
‘T’ |
| 1A | Exclusively for purpose other than business |
‘T1’ |
| 1B | Exclusively for effecting exempt supplies |
‘T2’ |
| 1C | Negative list for credit – Section 17(5) of the CGST Act |
‘T3’ |
| Step-2 | Amount of ITC credited to electronic credit ledger |
C1=T- T1– T2– T3 |
| 2A | Credit pertaining to inputs and input services used exclusively for effecting taxable supplies |
‘T4’ |
| 2B | Common credit |
C2=C1 – T4 |
| 2C | ITC attributable towards exempt supplies |
D1=E/F*C2 |
| 2D | credit attributable towards non- business purposes |
D2 = 5%*C2 |
| Step-3 | Add D1 & D2 to output tax liability |
- T1 , T2 ,T3 & T4 are to be determined at invoice
- Here ‘E’ refers to exempt supplies i.e. all turnover other than taxable and zero rated supplies. It may be noted that exempt supplies include value of land & building sold or value of securities sold.
- ‘F’ refers to total turnover in a tax period
To simplify the above calculation : Credit available with respect to inputs and input services is C1 – (D1 & D2)
Now the above calculation has to be finalized at end of the year based on annual figures.
- Where credit eligible exceeds the credit availed in monthly returns, the balance can be availed in or before filing the return of the month September of the following year
- Where the credit eligible is less than the credit availed in monthly returns, the excess will be recoverable along with interest