Apportionment of Credit and Blocked Credit

Definition of 'Capital goods', Input', 'Input Service' & 'Input Tax' .

• Sec.2 (19) "Capital Goods" means goods, the value of which is capitalized in the Books of Account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

• Sec.2 (59) "Input" means Goods other than capital goods used or intended to be used by a supplier in course of furtherance of business.

• Sec.2 (60) "Input Service" means any service used or intended to be used by a supplier in the course or furtherance of business.

• Sec.2 (62) Input tax" in relation to a registered person, means Central tax, State tax, integrated tax, Union Territory Tax charged on supply of Goods or Services or both to him and includes IGST on imports, tax paid under reverse charge but does not include Tax paid under Composition Scheme.

(Will connect this under section 17(5) of CGST Act, 2017.)

I. Input Tax Credit restricted to supplies for business purposes

Section 17(1) says that where the goods and/or services are used by the registered taxable person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business and remaining will not be available.

II. Section 17(3) determines only for this Chapter

Further, it has been clarified that it will not include the consideration represented in the form of interest on deposit loans or advances and Expense representing freight of Goods transported from India to the place outside India.

Taxable Supply: - includes Zero Rated Supply as determined under section 16 of IGST Act, 2017.

III. If the input tax as is attributable to the Input Tax Credit restricted to taxable supplies Section 17(2) says that where the goods and/or services are used by the registered taxable person partly for effecting Taxable supplies including zero-rated supplies under this Act Or under the IGST Act, 2016 and partly for effecting exempt Supplies under the said Acts, the amount of credit shall be restricted to so much said taxable supplies including zero-rated supplies.

Before Moving Further Let's Understand Rule 42 (Distributing Input Tax Credit Commonly used Input and Input Service) and Rule 43 for (Distributing Input Tax Credit for Commonly used Capital Goods)

Rule 42 of CGST Rules, 2017:- Manner of Determination of Input Tax Credit in respect of Inputs or Input Services Used Commonly for Effect Taxable as Well as Exempt Supply/Non-Business Supply and Reversal thereof will be as follows:

(a) The total input tax involved on inputs and input services in a tax period, be denoted as 'T';

(b) The amount of input tax, out of 'T', attributable to inputs and input services intended to be used exclusively for the purposes other than business, be denoted as 'T1';

(c) the amount of input tax, out of 'T', attributable to inputs and input services intended 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 on which 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 the registered person, 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 to be used exclusively for effecting supplies other than exempted but including zero-rated supplies, be denoted as 'T4';

(g) Input tax credit left after attribution of input tax credit under clause (f) shall be called common credit, be denoted as 'C2' and calculated asC2 = C1- T4;

• The amount of input tax credit attributable to exempt supplies, be denoted as 'D1' and calculated as

D1= (E÷F) × 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

• Determine ITC related to Non-business purpose (say D2)

D2= C2 * 5%

Tax payable = D1+ D2 = Add to output tax liability

Final reconciliation to be made

Aggregate D1+D2 declared and finally computed on annual turnover before filing of return of September of following year. Make adjustment for Following

• If declared is more than computed, claim credit
• If declared is less than computed, pay tax along with interest.

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