ITC Rules – Manner of Reversal
II.Reversal of credit where capital goods are used partly for business purposes or partly for effecting exempt supplies:
- Amount of input tax in respect of capital goods used exclusively for non business purposes or used for effecting exempted supplies shall be indicated in GSTR-2 and shall not be credited in ECL
- Amount of input tax in respect of capital goods used exclusively for effecting taxable supplies including zero rated supplies shall be indicated in GSTR-2 and shall be credited in ECL
- Amount of input tax for remaining capital goods shall be denoted as ‘A’ and useful life shall be taken as 5 years
- In case where capital goods subsequently used for business purposes or for effecting taxable supplies including zero rated supplies, input tax credit shall be included in A after reducing 5% for every quarter
- The aggregate amount of A shall be denoted as Tc
- Input tax attributable to common capital goods “Tm=Tc/60”
- Input tax at the beginning of tax period for capital goods having remaining residual life during tax period ‘Tr’ which is aggregate of Tm of all capital goods
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- Amount of credit attributable towards exempted supplies “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:
- Amount of Te along with applicable interest shall be added to output tax liability during every tax period of the residual life of the concerned capital goods
- Te to be computed separately for CGST, SGST, UTGST, IGST
For the purpose of this rule –
(1) “capital goods” shall include “plant and machinery” as defined in the Explanation to section 17;
(2) for determining the value of an exempt supply as referred to in sub-section (3) of section 17:-
(a) the value of land and building shall be taken as the same as adopted for the purpose of paying stamp duty; and
(b) the value of security shall be taken as one per cent. of the sale value of such security.