Rule 42 of CGST Rules -Manner of determination of input tax credit in respect of inputs or input servicesand reversal thereof

(updated as on 15.11.2017)

(1) The input tax credit in respect of inputs or input services, whichattract the provisions of sub-section (1) or sub-section (2) of section 17, being partly usedfor the purposes of business and partly for other purposes, or partly used for effectingtaxable supplies including zero rated supplies and partly for effecting exempt supplies, shallbe attributed to the purposes of business or for effecting taxable supplies in the followingmanner, namely,-

(a) the total input tax involved on inputs and input services in a tax period, bedenoted as T;

(b) the amount of input tax, out of T, attributable to inputs and input servicesintended to be used exclusively for the purposes other than business, be denoted asT1;

(c) the amount of input tax, out of T, attributable to inputs and input servicesintended 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 and input services onwhich credit is not available under sub-section (5) of section 17, be denoted as T3;

(e) the amount of input tax credit credited to the electronic credit ledger of registeredperson, 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 intended tobe used exclusively for effecting supplies other than exempted but including zerorated supplies, be denoted as T4;

(g) T1, T2, T3 and T4 shall be determined and declared by the registered personat the invoice level in FORM GSTR-2;

(h) input tax credit left after attribution of input tax credit under clause (g) shall becalled 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 asD1 and calculated as

D1=(EF) C2

where,
E is the aggregate value of exempt supplies during the tax period, and
F is the total turnover in the State of the registered person during the tax period:

Provided that where the registered person does not have any turnover duringthe said tax period or the aforesaid information is not available, the value of E/Fshall be calculated by taking values of E and F of the last tax period for which thedetails of such turnover are available, previous to the month during which the saidvalue of E/F is to be calculated;

Explanation: For the purposes of this clause, it is hereby clarified that the aggregatevalue of exempt supplies and the total turnover shall exclude the amount of any dutyor tax levied under entry 84 of List I of the Seventh Schedule to the Constitution andentry 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, bedenoted 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 creditattributed to the purposes of business and for effecting supplies other than exemptedsupplies but 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 aggregate of D1 and D2 shall be added to the output taxliability of the registered person:

Provided that where the amount of input tax relating to inputs or inputservices used partly for the purposes other than business and partly for effectingexempt supplies has been identified and segregated at the invoice level by theregistered person, the same shall be included in T1 and T2 respectively, and theremaining amount of credit on such inputs or input services shall be included in T4.

(2) The input tax credit determined under sub-rule (1) shall be calculated finally for thefinancial year before the due date for furnishing of the return for the month of Septemberfollowing the end of the financial year to which such credit relates, in the manner specifiedin the said sub-rule and-

(a) where the aggregate of the amounts calculated finally in respect of D1 and D2exceeds the aggregate of the amounts determined under sub-rule (1) in respect of D1 andD2, such excess shall be added to the output tax liability of the registered person in themonth not later than the month of September following the end of the financial year towhich such credit relates and the said person shall be liable to pay interest on the said excessamount at the rate specified in sub-section (1) of section 50 for the period starting from thefirst 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 ofD1 and D2 exceeds the aggregate of the amounts calculated finally in respect of D1 andD2, such excess amount shall be claimed as credit by the registered person in his return fora month not later than the month of September following the end of the financial year towhich such credit relates.

CHAPTER V

INPUT TAX CREDIT

Rule 36 :Documentary requirements and conditions for claiming input tax credit
Rule 37 : Reversal of input tax credit in the case of non-payment of consideration
Rule 38 :Claim of credit by a banking company or a financial institution
Rule 39 :Procedure for distribution of input tax credit by Input Service Distributor
Rule 40 :Manner of claiming credit in special circumstances
Rule 41 :Transfer of credit on sale, merger, amalgamation, lease or transfer of abusiness
Rule 42 :Manner of determination of input tax credit in respect of inputs or input servicesand reversal thereof
Rule 43 :Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases
Rule 44 :Manner of reversal of credit under special circumstances
Rule 44A : Manner of reversal of credit of Additional duty of Customs in respect of Golddore bar
Rule 45 :Conditions and restrictions in respect of inputs and capital goods sent to the jobworker

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