CHAPTER 11

 

Input Tax Credit when exempted as well as taxable supplies made

 

In the following cases, proportionate value of ITC is to be availed:

  1. Where goods/services are used partly for the purpose of business and partly for other purposes, the amount of ITC shall be restricted to so much of the input tax as is attributable to the purposes of his business.
  2. Where goods/services are used 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 taxable supplies including the zero rated supplies.
  3. A banking company, FI, NBFC may either opt to claim ITC as mentioned in 1 and 2 above or opt for an amount equal to 50% of the eligible ITC on input, capital goods and input services every month. Either option, once exercised shall not be withdrawn for the rest of the financial year. The 50% provision does not apply to transactions between two branches or entities having the same PAN.

 

Refund on  zero rated supplies:

Since ITC is available on certain supplies, for example export/supplies to SEZ, etc even though GST is not payable, the registered person can claim a refund of input tax in either of the following two methods:

  1. Supply goods under bond or Letter of Undertaking without payment of IGST and claim refund of unutilised ITC or
  2. Supply goods on payment of IGST and claim refund of IGST on goods and services.

 

Formula for calculation of eligible input tax credit:

  1. C1 = T- (T1+T2+T3); where
    T = the total input tax involved on inputs/services in a tax period
    T1 = the amount of input tax out of T attributable to inputs used exclusively for purposes other than business.

    T2 = the amount of input tax out of T attributable to inputs used exclusively for effecting exempt supplies
    T3 =the amount of input tax out of T in respect of inputs on which credit is not available
    C1 = the amount of ITC credited to the electronic credit ledger of the registered person
  2. C2 = C1 -T4; where
    T4 = the amount of ITC attributable to inputs used exclusively in or in relation to taxable supplies including zero rated supplies

    C2 = ITC left after attribution of ITC above and shall be called as common credit
  3. D1 = (E/F)* C2; where
    E = aggregate value of exempt supplies
    F = total turnover during the tax period
    D1 = amount of ITC attributable towards exempt supplies
  4. C3 = C2 – (D1+D2); where
    D2 = 5% of C2 denoting the amount of credit attributable to non business purposes of common credit.
    C3 = remaining common credit eligible for ITC attributed to the business purposes and for effecting taxable supplies including zero rated supplies
  5. The amounts D1 and D2 shall be added to the output tax liability.
  6. The amount C3 shall be computed separately for CGST, SGST/UTGST and IGST.
  7. On calculation of the final eligible credit at the end of the financial year, any difference in credit shall be paid as output tax liability or claimed as a refund accordingly.

 

Formula for calculation of eligible input tax credit on capital goods

  1. The amount of credit relating to non-business and business and that relating to taxable and exempt shall be indicated in Form GSTR 2 and only that portion relating to business and taxable supplies will be credited to the electronic ledger account.
  2. The remaining common credit will be divided over the residual life of the capital goods and calculated as TM = Tc/60  where Tc is the remaining common credit.
  3. Total of TM on all capital goods = Tr
  4. Calculate amount attributable to exempt supplies Te as:
    Te = (E/F) *Tr; where
    E = aggregate value of exempt supplies
    F = total turnover during the tax period
  5. Amount of Te along with applicable interest to be added to the output tax liability and to be calculated separately for CGST, SGST/UTGST and IGST.