Determination of input tax credit when partly used for taxable supply and partly for exempt supply :
The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) or 17(2), being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempted supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely, –
(a) total input tax involved on inputs and input services in a tax period, be denoted as ‘T’.
(b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for purposes other than business, be denoted as ‘T1’.
(c) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for effecting exempt supplies, be denoted as ‘T2’.
(d) the amount of input tax, out of ‘T’, in respect of inputs on which credit is not available under subsection (5) of section 17, be denoted as ‘T3’.
(e) the amount of input tax credit credited to the electronic credit ledger of registered person, be denoted as ‘C1’ and calculated as:
C1 = T- (T1+T2+T3).
(f) the amount of input tax credit attributable to inputs and input services used exclusively in or in relation to taxable supplies including zero rated supplies, be denoted as ‘T4’.
(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level in form GSTR-2.
(h) Input tax credit left after attribution of input tax credit under clause (g) shall be called common credit, be denoted as ‘C2’ and calculated as:
C2 = C1- T4.
(i) The amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and calculated as: D1= (E÷F) × C2 where, ‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period:
Where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall calculated by taking values of ‘E’ and ‘F’ of the last tax period for which details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to calculated – proviso to rule 7 of Input Tax Credit Rules.
Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.
(j) the amount of credit attributable to non-business purposes if common inputs and input services are used partly for business and partly for non-business purposes, be denoted as ‘D2′, and shall be equal to five per cent of C2’, and
(k) the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting taxable supplies including zero rated supplies and shall be denoted as ‘C3’, where,- C3 = C2 – (D1+D2).
(l) The amount ‘C3’ shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax.
(m) The amount equal to ‘D1’ and ‘D2’ shall be added to the output tax liability of the registered person: If the amount of input tax relating to inputs or input services which have been used partly for purposes other than business and partly for effecting exempt supplies has been identified and
segregated at invoice level by the registered person, the same shall be included in ‘T1’ and ‘T2’ respectively, and the remaining amount of credit on such input or input services shall be included in ‘T4’. – rule 7(1) of Input Tax Credit Rules.
Final calculations at end of financial year
The input tax credit determined under rule 7(1) shall be calculated finally for the financial year before the due date for filing the return for the month of September following the end of the financial year to which such credit relates, in the manner prescribed in the said sub-rule and,
(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be added to the output tax liability of the registered person for a month not later than the month
of September following the end of the financial year to which such credit relates and the said person shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of section 50 for the period starting from first day of April of the succeeding financial year till the date of payment, or
(b) where the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’, such excess amount shall be claimed as credit by the registered person in his return for a month not later than the
month of September following the end of the financial year to which such credit relates – rule 7(2) of Input Tax Credit Rules.