Rule 43 - Manner of determination of ITC in respect of Capital goods and reversal thereof in certain cases - GST Ready Reckoner - GST

Manner of determination of ITC in respect of Capital goods and reversal thereof in certain cases Subject of the provisions of section 16(3) , The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) (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 under rule 43 of CGST Rules Rule 43 - Manner of determination ITC in respect of Capital Goods Manner of determination of ITC in respect of capital goods and reversal thereof under section 17(1) (2) - Rules 43 (1) of the GST Rules w.e.f. 01.04.2020 Rule 43(1) of CGST Rules: -Determine common credit Tc on capital goods as under: (a) Identify 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-3B and shall not be credited to his electronic credit ledger. (b) Identify the amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero rated supplies shall be indicated in FORM GSTR-3B and shall be credited to the electronic credit ledger. it is hereby clarified that in case of supply of services covered by paragraph 5(b) of the Schedule II of the CGST Act, the amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero rated supplies, shall be zero during the construction phase because capital goods will be commonly used for construction of apartments booked on or before the date of issuance of completion certificate or first occupation of the project, whichever is earlier, and those which are not booked by the said date. (c) Identify input tax on capital goods not covered under (a) and (b) above , and denote the same as A .Such amount (as reflected on the invoice) will be credited to ECrL. The useful life of such capital goods will be taken as 5 years from the date of invoice. where any capital goods earlier covered under clause (a) is subsequently covered under this clause, input tax in respect of such capital goods denoted as A shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (a),denoted as Tie , shall be calculated at the rate of five percentage points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed The amount Tie 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 . (d) The aggregate amounts of A credited to ECrL under clause (c) in respect of common capital goods whose useful life remains during the tax period to arrive at common credit Tc , shall be common credit in respect of such capital goods Where capital goods which were initially covered under (b) above get subsequently covered under (c), add input tax claimed in respect of the same to aggregate value of Tc . (e) The amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as T m and calculated as - Tm = Tc 60 (f) Omitted (g) Apportion common credit attributable to exempt supplies as under: Te = (E F) x Tr Where, E = Aggregate value of exempt supplies made during the tax period F = Total turnover in the State during the tax period In case of supply of services covered by paragraph 5(b) of schedule II of the CGST Act ( i.e. complex construction, the value of E/F for the tax period shall be calculate 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: - 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 notification No. 11/2017-Central Tax (Rate) , 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).as amended. For the purpose of rule 43(1)(g) of CGST Rules , 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 . 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 (h) Restrict ineligible credit, Add Te to the output tax liability along with applicable interest during every tax period of the useful life of the capital goods concerned. Add amount equal to Te along with interest as per section 50 in the output tax liability for every tax period. (i) Determine Te for CGST,SGST/UTGST and IGST separately for every tax period and declare in the form GSTR3B or through form GST DRC-03. Manner of determination of Final ITC in respect of capital goods complex construction (Residential Commercial Project) Rule 43 (2) to (5) of CGST Rules . To whom these provisions are applicable Residential Commercial project Period of which final computation to be compute From the commencement of the project or 1 July 2017, whichever is later To the completion or first occupation of the project, whichever is later 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, Manner of final computation Te final = [(E1 + E2 + E3) /F] x Tc final , Where,- E1 = Aggregate carpet area of the apartments, construction of which is exempt from tax E2 = Aggregate carpet area of the apartments, supply of which is partly exempt and partly taxable, consequent to change of rates of tax on 1st April, 2019, which shall be calculated as under, - E2 = [Carpet area of such apartments] x [V 1 / (V 1 +V 2 )] Where,- V1 is the total value of supply of such apartments which was exempt from tax; and V2 is the total value of supply of such apartments which was taxable E3 = Aggregate carpet area of the apartments, construction of which is not exempt from tax, but 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; Tc final = Aggregate of A final in respect of all capital goods used in the project and A final for each capital goods shall be calculated as under, A final = A x (number of months for which capital goods is used for the project/ 60) Variance between the amount claimed and eligible amount Where the value of Te final exceeds the aggregate of amount of Te determined for each tax period under rule 43(1), such excess shall be reversed by the registered person in Form GSTR-3B or through Form GST DRC-03. 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 aggregate of amounts of Te determined for each tax period under sub-rule (1) exceeds Te final , 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. The amount Te final and Tc final shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax. Where any capital goods are used for more than one project, input tax credit with respect to such capital goods shall be assigned to each project on a reasonable basis and credit reversal pertaining to each project shall be carried out as per sub-rule (2). Where any capital goods used for the project have their useful life remaining on the completion of the project, input tax credit attributable to the remaining life shall be availed in the project in which the capital goods is further used.