Rule 42 - Manner of determination of ITC in respect of input & input services and reversal thereof - GST Ready Reckoner - GST

Manner of determination of ITC in respect of input input services and reversal The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) or section 17(2) being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rates supplies, and partly for effecting exempt supplies, shall be attributable to the purposes of business or for the effecting taxable supplies in the following manner prescribed. Manner of determination of ITC in respect of inputs and inputs services and reversal thereof under - Rule 42 (1) (2) of CGST Rules . Sub Rule 42(1): - The amount of input tax credit credited to the electronic credit ledger of registered person, be denoted as C1 and calculated as, Step 1 Input tax credit credited to the electronic credit ledger Credit - C1 = T- (T1+T2+T3) (T) The total input tax involved on inputs and input services in a tax period (T1) Inputs and input services intended to be used exclusively for the purposes other than business (T2) Inputs and input services intended to be used exclusively for effecting exempt supplies (T3) Inputs and input services on which credit is not available under sub-section (5) of section 17 (C1) Input tax credit credited to the electronic credit ledger [C1= T- (T1+T2+T3)] Step 2 - After calculating Input tax credit credited to the electronic credit ledger Credit - C1 , Calculate common credit, be denoted as C2 and calculated as- After calculating C1 , Calculate common credit, be denoted as C2 and calculated as- (T4) Input tax credit attributable to inputs and input services intended to be used exclusively for effecting taxable supplies including zero rated supplies (C2) Common credit available for apportionment C2 = [C1 - T4] Step 3 Determine D1 i.e., amount of ITC attributable towards exempt supplies by following formula for a tax period D1 = (E / F) x C2 Where E - Aggregate value of exempt supplies (i.e., supplies other than taxable supplies and zero rate supplies) during the tax period F - The total turnover in the State of the registered person during the tax period Read with Rule 42(2) of CGST Rules:- Provided that in case of supply of services covered by clause (b) of paragraph 5 of Schedule II of the Act, the value of E/F for a tax period shall be calculated for each project separately, taking value of E and F as under:- E= aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but are identified by the promoter to be sold after issue of completion certificate or first occupation, whichever is earlier; F= aggregate carpet area of the apartments in the project; Explanation 1: In the tax period in which the issuance of completion certificate or first occupation of the project takes place, value of E shall also include aggregate carpet area of the apartments, which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier; Explanation 2: Carpet area of apartments, tax on construction of which is paid or payable at the rates specified for items (i), (ia), (ib), (ic) or (id), against serial number 3 of the Table in the notification No. 11/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 690(E) dated 28th June, 2017, as amended, shall be taken into account for calculation of value of E in view of Explanation (iv) in paragraph 4 of the notification No. 11/2017-Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated 28th June, 2017 vide GSR number 690(E) dated 28th June, 2017, as amended. 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 be calculated by taking values of E and F of the last tax period for which the details of such turnover are available, previous to the month during which the said value of E/F is to be calculated. Note (a) The aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 and entry 92A of List I of the Seventh Schedule to the Constitution , and under entry 51 and 54 of List II of the Seventh Schedule to the Constitution . Notes: - Entry 84: - Duties of excise on all excisable goods manufactured or product in India Entry 92A: - Tax on inter-state sale (CST) Entry 51: - State Excise duty on liquor, opium etc. Entry 54: - Taxes on the sale or purchase of goods other than state supply Step 4: - D2 - Determine the amount of ITC attributable to non - business purpose by following for a tax period D2 = 5% of C2 Step 5: - After calculating C2 , the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting supplies other than exempted supplies but including zero rated supplies and shall be denoted as C3 , where C3 = C2 - (D1+D2) Step 6: - Reverse the ITC = (D1 + D2) The amount C3 D1 and D2 shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in FORM GSTR-3B or through FORM GST DRC-03; The amount equal to aggregate of D1 and D2 shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03. Rule 42(2):- Except in case of supply of services covered by clause (b) of paragraph 5 of the Schedule II of the Act, The input tax credit determined under rule 42(1) shall be calculated finally for the financial year before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates, in the manner specified in the said rule 42(1) and- where, the aggregate of the amounts calculated finally in respect of D1 and D2 exceeds the aggregate of the amounts determined under rule 42(1) in respect of D1 and D2 , such excess shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the 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 section 50(1) for the period starting from the first day of April of the succeeding financial year till the date of payment; or 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. In case of supply of services covered by clause (b) of paragraph 5 of the Schedule II of the Act, the input tax determined under rule 42(1) shall be calculated finally, for each ongoing project or project which commences on or after 1st April, 2019, [Read with Rule 42 (3) to (6) of CGST Rules . ( Notification No. 16 / 2019 Central Tax )] In case of complex construction Residential portion in residential real estate project (RREP) (other than those opted to pay tax @ 1% and 5% ) or commercial projects. These provisions are applicable Commercial project irrespective of the date of commencement and are going on 1 April 2019, or Residential ongoing project as on 1 April 2019, which did not undergo or did not require transition of input tax credit consequent to change of rate of tax on 1 April 2019, i.e., ongoing project who are paying tax @ 8% or 12% with ITC. Period for which Final computation would be made From the commencement of the project or 1 July 2017, whichever is later To the completion or first occupation of the project, whichever is earlier Due date of final computation would be made Before the due date for furnishing of the return for the month of September following the end of financial year in which the completion certificate is issued or first occupation take place of the project, The said person shall be liable to pay interest on the said excess amount at the rate specified in section 50(1) for the period starting from the first day of April of the succeeding financial year till the date of payment. Manner of final computation Step 1: - C1 = T- (T1+T2+T3) [same as Rule 42 (1) (2)] Step 2: - C2 = C1- T4 [same as Rule 42 (1) (2)] Step 3: - Calculate D1 Here D1 - Determine the amount of ITC attributable towards exempt supplies by following for tax period D1 = (E / F ) x C2 E= aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier: F= aggregate carpet area of the apartments in the project; Step 4: - Calculate D2 D2 - Determine the amount of ITC attributable to non - business purpose by following for a tax period D2 = 5% of C2 Step 5: - After calculating C2 , the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of business and for effecting supplies other than exempted supplies but including zero rated supplies and shall be denoted as C3 , where C3 = C2 - (D1+D2) Step 6:- Reverse the ITC = ( D1 + D2 ) where the aggregate of the amounts calculated finally in respect of D1 and D2 exceeds the aggregate of the amounts determined under rule 42(1) in respect of D1 and D2 , such excess shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the month of September following the end of the financial year in which the completion certificate is issued or first occupation of the project takes place and the said person shall be liable to pay interest on the said excess amount at the rate specified in section 50(1) for the period starting from the first day of April of the succeeding financial year till the date of payment; or where the aggregate of the amounts determined under rule 42(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 in which the completion certificate is issued or first occupation takes place of the project. Commercial portion in each project (other than RREP otped to pay tax @ 1% or 5%) [Read with Rule 42 (4) to (6) of CGST Rules . [Notification no. 16/2019 CGST Act 2017 dt. 29.03.2019] Sub Rule 4: - In case of supply of services covered by clause (b) of paragraph 5 of Schedule II of the Act, the input tax determined under rule 42(1) shall be calculated finally, for commercial portion in each project, other than residential real estate project (RREP) These provisions are applicable For commercial portion in each project shall be determine the final credit. Period for which Final computation would be made From the commencement of the project or 1 July 2017, whichever is later To the completion or first occupation of the project, whichever is earlier Due date of final computation would be made Before the due date for furnishing of the return for the month of September following the end of financial year in which the completion certificate is issued or first occupation take place of the project, The said person shall be liable to pay interest on the said excess amount at the rate specified in section 50(1) for the period starting from the first day of April of the succeeding financial year till the date of payment. Manner of final computation Step 1: - C1 = T- (T1+T2+T3) [same as Rule 42 (1) (2)] Step 2: - C2 = C1- T4 [same as Rule 42 (1) (2)] Step 3: - (a) The aggregate amount of common credit on commercial portion in the project (C3aggregate_comm) shall be calculated as under, C3aggregate_comm = [aggregate of amounts of C3 determined under rule 42(1) for the tax periods starting from 1st July, 2017 to 31st March, 2019, x (AC / AT)] + [ aggregate of amounts of C3 determined under rule 42(1)for the tax periods starting from 1st April, 2019 to the date of completion or first occupation of the project, whichever is earlier] Where, - AC = total carpet area of the commercial apartments in the project AT = total carpet area of all apartments in the project (b) The amount of final eligible common credit on commercial portion in the project (C3final_comm) shall be calculated as under C3final_comm = C3aggregate_comm x (E/ F) Where, - E = total carpet area of commercial apartments which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier. F = AC = total carpet area of the commercial apartments in the project (c) where, C3aggregate_comm exceeds C3final_comm, such excess shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the month of September following the end of the financial year in which the completion certificate is issued or first occupation takes place of the project and the said person shall be liable to pay interest on the said excess amount at the rate specified in section 50(1) for the period starting from the first day of April of the succeeding financial year till the date of payment; (d) where, C3final_comm exceeds C3aggregate_comm, 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 in which the completion certificate is issued or first RREP opted to pay tax @ 1%/5% Rule 42(5) :- Input tax determined under rule 42(1) shall not be required to be calculated finally on completion or first occupation of an RREP which underwent transition of input tax credit consequent to change of rates of tax on 1st April, 2019 in accordance with notification No. 11/2017- Central Tax (Rate), dated the 28th June, 2017, as amended. Input pertains to multiple projects Rule 42(6) :- Where any input or input service are used for more than one project, input tax credit with respect to such input or input service shall be assigned to each project on a reasonable basis and credit reversal pertaining to each project shall be carried out as per rule 42(3).