Determination of input tax credit in respect of capital goods used partly for taxable supply and partly for exempt supply :
Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, 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 exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner – rule 8(1) of Input Tax Credit Rules.
(a) the amount of input tax in respect of capital goods used or intended to be used exclusively for non business purposes or used or intended to be used exclusively for effecting exempt supplies shall be indicated in form GSTR-2 and shall not be credited to his electronic credit ledger.
(b) the amount of input tax in respect of capital goods used or intended to be used exclusively for
effecting taxable supplies including zero-rated supplies shall be indicated in form GSTR-2 and shall be credited to the electronic credit ledger.
(c) the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as five years:
Where any capital goods earlier covered under clause (a) is subsequently covered under this clause, the value of ‘A’ shall be arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall be credited to the electronic credit ledger.
(d) the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period:
Where any capital goods earlier covered under clause (b) is subsequently covered under this clause, the value of ‘A’ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc’.
(e) the amount of input tax credit attributable to a tax period on common capital goods during their residual life, be denoted as ‘Tm’ and calculated as:— Tm= Tc÷60 the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose
residual life remains during the tax period, be denoted as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods.
the amount of common credit attributable towards exempted supplies, be denoted as ‘Te’, and calculated as: Te= (E÷ F) × Tr 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:
Provided that 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’ 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.
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.
(h) the amount Te along with applicable interest shall, during every tax period of the residual life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit.
Separate calculations for IGST, CGST, SGST and UTGST – The amount Te shall be computed separately for central tax, State tax, Union territory tax and integrated tax [rule 8(2) of Input Tax Credit Rules].