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 D& D2 to output tax liability
  • T1 , T2 ,T3 & Tare 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 C– (D& 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