With introduction of ITC Rules for Common Credit under GST i.e. Exempt and Taxable Supply , Business and Non-Business Activity it is evident that new rules are kept aligned to a major extent with the existing rules for claiming input tax credit under CENVAT Rules 2004, attributable to inputs and input services used for business and non-business (personal) activity and/or providing exempt and taxable supplies.
Rules for determination of Input Tax Credit for a registered person
A. ITC will be based on ratio of aggregate value of exempt supplies and total turnover in the State during the tax period
Where a person who consumes goods and/or services for business and personal purpose
Where a person engaged in taxable business and non-taxable business, consumes the goods and/or services commonly for both the businesses
However, in case the value is not available w.r.t.
- aggregate value of exempt supplies
- total turnover
values available during last tax period, before the period for which ITC is to be calculated is to be considered.
Example- Where Eligible ITC for the month of May is to be calculated no exempt supplies have been made during May but exempt supplies have been made during April. Then the value of supplies during April may be considered for calculation.
B. ITC will not be available on goods or services exclusively used for:
- Non-business activity
- Exempt supplies
- Supplies w.r.t. which ITC is not available
C. ITC will be allowed to be availed on such goods and services used exclusively for taxable supplies including zero rated supplies and for business purposes.
D. Common Credit is the credit left over after deducting all the input tax attributed to items referred in point B and C above from total input tax available.
E. In case common credit represents amount of input tax towards non-business purpose also, 5% of common credit will not be available
Other Conditions for claiming ITC
ITC shall be calculated finally for the whole financial year before the due date of filing the return for September of the next financial year.
- In case the ineligible credit amount finally calculated w.r.t.
- commonly used inputs and input services for taxable or exempt services
=( Value of total exempt supplier/ Total Turnover) * Common Credit
- commonly used for business and non-business activity
= 5% of Common Credit
Differs with the amount calculated during the financial year, following action shall be taken
- amount finally calculated exceeds the amount determined earlier, difference shall be added to output tax liability and interest @ 18% to be paid from 1st of April till date of payment
- amount finally calculated lower than the amount determined earlier, difference shall be claimed as credit within the month of September of next year.
Let us know the whole scenario of calculations with the below mentioned Example
Mr. Anand is engaged in textile business (taxable) and agricultural activity (exempt). He uses goods and services of for both the businesses and for personal use also.
Details for the month of May 2017 as follows:
Total Input Tax available in the tax period- 1,00,000
Aggregate Value Supplies under Textile Business- 5,00,000
Aggregate Value Supplies under Agricultural activity- 5,00,000
Input Tax w.r.t inputs and services exclusively for textile business- 10,000
Input Tax w.r.t inputs and services exclusively for agricultural activity – 20,000
Input Tax w.r.t inputs and services exclusively for personal purpose- 5,000
Input Tax w.r.t inputs and services on which availing credit is not eligible- 10,000
Let us now check how much amount is allowed as ITC.
- Input Tax credited to electronic Credit Ledger
Total ITC – Input Tax w.r.t. credit which is ineligible
= 1,00,000 – 20,000 – 5,000 – 10,000
2. Common Credit
Input Tax credited to Electronic Credit Ledger – Input Tax w.r.t. taxable supplies
= 65,000 – 10,000
C. Input Tax attributable to Exempt Supplies out of Common Credit
= 55,000 – (5,00,000 / 10,00,000) * 55,000
D. Ineligible Input Tax attributable to personal activity out of Common Credit = Common Credit – 5% 0f Common Credit
= 5% of 55,000
E. Total Eligible Credit after deducting ineligible input tax out of Common credit
= 27,500 – 2,750
Now the same calculations must be done for the whole financial year 2017-18 again, before the end of the due date of furnishing the return for September month following the financial year under consideration. Here let’s suppose the total eligible credit differs from the above calculations in the following manner:
- At year-end total eligible credit is 30,000
Here (30,000 – 24,750) = 5,250 will be allowed to be claimed as credit for any month before September 2018
2. At year-end total eligible credit is 20,000
Here (24,750 – 20,000) = 4,750 will be added to output tax liability and interest @ 18% would be payable from 1st April 2018 till date of actual payment.
From the above calculations it is clear that ITC Rules for Common Credit under GST have been meant to be followed strictly to avoid recovery mechanism and other compliance
To know more about ITC rules under GST click here