Chapter 7 Input Tax Credit Under GST

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GST Certification Course

Study Material
Chapter 7
Input Tax Credit under GST
Chapter 9
Input Tax Credit Under GST
Eligibility and conditions for taking input tax credit
Eligibility and conditions for taking input tax credit can be understood under
following sub parts-
1. ELIGIBILITY FOR TAKING ITC U/S 16(1)
Every person registered under the GST Act is entitled to take the credit of input taxes charged on the
supply of goods or services or both which are used or to be used in the course or furtherance of
business.
The said amount of input tax credit shall be credited to the electronic credit ledger of such person.
© TAXO Academy | Study Material Chapter 7 Page 1 of 27

The “intention to use” the goods and /or services in the course or furtherance of business would also
suffice for availing ITC on such goods and/or services. Thus, tax paid on goods and/or services which
are used or intended to be used for non- business purpose cannot be availed as credit.
2. CONDITIONS FOR TAKING ITC U/S 16(2)
Credit of input taxes shall be available to the registered person only if the following conditions are
satisfied:
(a) The recipient should be in possession of tax invoice or debit note or such other taxpaying
documents issued by a registered supplier as may be prescribed under Rule 36 of the CGST Rules,
2017.
(aa) the details of such invoice or debit note referred to in clause (a) have been furnished by the
supplier in the statement of outward supplies (GSTR- 1) and such details have been communicated
to the recipient of such invoice or debit note in the manner specified U/s 37 (GSTR- 2B). (Inserted
by Section 109 of Finance Act,2021 and notified vide NN 39/2021-CT w.e.f 1st January
2022)
(b) The recipient should have received the goods or services or both.
(ba) The details of input tax credit in respect of the said supply communicated to such registered
person under section 38 has not been restricted (Proposed to be inserted by Finance bill,
2022 dated 01.02.2022)
(c) The supplier should have actually paid the tax charged in respect of the supply to the
government and
(d) The recipient should have furnished the return under section 39 (GSTR- 3B)
2.1 Condition 1: Possession of Tax Invoice
He is in possession of a tax invoice or a debit note issued by the registered supplier, or such other
tax paying documents prescribed. Further, input tax credit shall be available only when the specified
particulars are mentioned on the said documents.
Rule 36 of Central Goods and Services Tax Rules, 2017 prescribed documentary
requirements and conditions for claiming input tax credit.
 Possession of Tax paying document: The input tax credit shall be availed by a registered
person, including the Input Service Distributor, on the basis of any of the following
documents, namely;
 An invoice issued by the supplier of goods or services or
 An invoice issued by recipient (receiving goods and/or services from unregistered supplier)
along with proof of payment of tax (in case of reverse charge)
 A debit note issued by the supplier
 A bill of entry or any similar document prescribed under the Customs Act, 1962 for the
Assessment of Integrated Tax on imports;
 Revised Invoice

 Documents issued by Input Service
 Relevant particulars in the document: The documents on the basis of which ITC is
being taken should have all the relevant particulars as prescribed in Rule 46 of the CGST
Rules, 2017 relating to a Tax Invoice. This requirement has been relaxed vide Proviso inserted
by the Central Goods and Services Tax (Eight Amendment) Rules, 2018, w.e.f. September 4,
2018. The registered person can avail input tax credit if the documents contain the following
minimum details-
 Amount of tax charged
 Description of goods or services
 Total value of supply of goods and/or services
 GSTIN of the supplier and recipient
 Place of supply in case of inter-State supply
 No ITC in certain cases: No registered person is permitted to avail any input tax credit in
respect of any tax that has been paid in pursuant to an order of demand on account of fraud,
willful misstatement, or suppression of fact.
2.2 Condition 2: Detail of such invoices should be reflected in recipient’s GSTR-2B
One more additional condition has been added for determining the eligibility of ITC. ITC would not
be available to the recipient, if the detail of such invoice or debit note has been not furnished by the
supplier in GSTR-1 and hence not being reflected in recipient’s GSTR-2B. This means that Recipient
is eligible to avail only those eligible ITC which is matched with GSTR 2B. Now, we can say that
100% invoice matching has been made essential for GST ITC from 01/01/2022. This
amendment is notified w.e.f 01.01.2022 via Notification No. 39/2021 – CT Dated 21st
December 2021.
Amendment in Rule 36(4)
Accordingly, with the aforesaid amendment, Rule 36(4) which allows the recipient to claim ITC for
the invoices which were not filed by the supplier in the GSTR-1, has lost its relevance considering
the fact that the recipient shall be (01/01/22 onwards) unable to claim an ITC if that is not
mentioned in the recipients GSTR-2B.
Hence, Rule 36(4) is amended vide Notification No. 40/2021 CT dated 29.12.2021
and Unmatched Credit Capped At 5 Percent removed . After this amendment no ITC shall
be availed by a registered person unless invoice/debit note –
1. furnished by the supplier in the statement of outward supplies in FORM GSTR-1

2. Said details have been communicated to the registered person in FORM GSTR-2B
Note: Now only ITC will be allowed to take only if that inputs are Reflected in GSTR 2B. Now no
Inputs can be taken which are not reflected in GST 2B. Hence, GSTR-2A has been removed from the
GST Portal for the month of January 2022 and onwards, only GSTR-2B shall be available vide
Notification No. 40/2021 CT dated 29.12.2021.
Before this Notification following provision was in force

As pre provision of rule 36(4) of CGST Rules 2017, If any invoice or debit note is not uploaded by
supplier in his GSTR-1 i.e., not in GSTR-2A of recipient of supply, then the ITC for the same invoices
or debit note can be claimed to the extent of 5 percent of total eligible credit of taxpayer.
2.3 Condition 3: Receipt of goods or services or both
The goods or services or both should have been received by the registered person to be eligible to
claim ITC. However, the registered person need not receive the goods or service himself. It is
sufficient even if the goods or service are delivered/provided to some other person on his direction.
 In case of bill to-ship to transactions (including where such goods are sent for job work), by
which the registered person instructs his supplier to ship the goods to another person on his
behalf, the date of receipt of goods by such another person shall be deemed to be the date of
receipt of goods by the said registered person.
Hence, it shall be deemed that the taxable person has received the goods where the goods are
delivered by the supplier to a recipient or any other person on the direction of such registered person,
whether acting as an agent or otherwise, before or during movement of goods, either by way of
transfer of documents of title to goods or otherwise.
 Similarly, services may also be provided to a third party by the service provider (supplier) on
the direction of the service recipient (registered person). In this case also, though the service
recipient does not receive the service, by virtue of explanation to section 16(2)(b) it is deemed
that the registered person has received the service.
In other words, service provided by any person on the direction of and on account of the registered
person, is deemed to have been received by such registered person. So, ITC will be available to the
registered person, on whose direction the service are provided to a third person.
2.3.1 ITC in case of goods received in lots or instalments
Where the goods against an invoice are received in lots or instalments, the registered person shall
be entitled to take the credit upon receipt of last lot or instalment.
Example
Mr. X orders 30000 tonnes of goods which are to be delivered by the supplier via 3 lots of 10000
each. The lots are sent under a single invoice with the first lot and the payment is made by the
recipient for Value of Supply plus GST and the supplier has also deposited the tax with the
Government.
The 3 lots are supplied in May, June, July 2021. The ITC is available to Mr. X only after the receipt
of the 3rd lot. The reason is simple, one of the conditions to avail ITC is the receipt of goods which is
completed only after the last lot is delivered.
2.3.2. Failure to make payment for the invoice within 180 days
Where the recipient of goods and services fails to pay to the supplier (except in case of supplies where
tax is payable on reverse charge) the amount of tax towards the value of supply and the tax payable
thereon within a period of 180 days from the date of issue of invoice, the amount of credit availed
shall be added to his output tax liability along with interest (not exceeding 18%) applicable from the
date of availing the credit till the date when the amount is added to the output tax liability.
Further, when the recipient make the payment for invoice along with tax thereon, he shall be entitled
to avail the ITC. In case part- payment has been made, proportionate credit would be allowed.
Rule 37 of Central Goods and Services Tax Rules, 2017 prescribed the manner of Reversal
of input tax credit in the case of non-payment of consideration
(1) Input tax credit availed on inward supply of goods or service or both to be reversed, where the
recipient of goods and services fails to pay to the supplier the amount towards the value of supply
and the tax payable thereon within a period of 180 days from the date of issue of invoice. Such
supplies will be specified in GSTR-2* of the month immediately following 180 days. (*GSTR-2- filing
of GSTR-2 has been deferred)
Exception
This condition of payment of value of supply plus tax within 180 days does not apply in the following
situations-
 Supplies on which tax is payable under reverse charge

 Deemed supplies without consideration i.e., supplies made without consideration as specified
in Schedule I of the said Act
 Additions made to the value of supplies on account of supplier’s liability as per the provision
of Section 15(2)(b), in relation to such supplies being incurred by the recipient of the supply.
Under situation given in point (b) & (c), the value of supply is deemed to have been paid.
(2) Such Input tax credit shall be added in the output tax liability of the said month.
(3) Such addition shall be made along with interest (not exceeding 18%) applicable from the date of
availing the credit till the date when the amount is added to the output tax liability.

(4) However, once the payment is made, the recipient will be entitled to avail the credit again without
any time limit i.e., the time limit specified in section 16(4) shall not apply to a claim for re-availing
of any credit.
If part payment is made within 180 days, then proportionate ITC can be availed.
EXAMPLE:
X Ltd. has purchased goods worth Rs. 1,00,000 [exc. GST @ 18%] on 1st August, 2020. X Ltd.
calculated GST @ 18% on 1st August 2020 which came to Rs. 18,000 and correspondingly took credit
of the same in the month of September. Owing to bad financial conditions of X Ltd., It failed to pay
Rs. 1,18,000 to the supplier. It paid the whole amount in the month of March, 2021. Discuss GST
Implementation.
 Date of Invoice = 1st August

 Last date to pay the entire amount = 28th January 2021
 Since X Ltd. has taken credit but not paid the entire amount, credit availed by A Ltd. has to
be reversed.
 It will be reversed in FORM GSTR-2/3B and tax has to be paid along with interest.
 Period of interest = from date of taking credit till date when amount added to Output Tax
Liability.
 It will be added back in the month of February i.e. the month immediately following the date.
 Upon full payment, X Ltd. Can re-claim credit in the month of March.
2.4 Condition 4: ITC should not be restricted U/s 38
Proposed amendment vide Finance Bill,2022 dated 01.02.2022
A new clause (ba) has been added under section 16(2) which is as follows: “The
details of input tax credit in respect of the said supply communicated to such registered person under
section 38 has not been restricted”
The proposed amendment seeks to provide that input tax credit (ITC) with respect to a supply can
be availed only if such credit has not been restricted in the autogenerated statement communicated
to the recipient under section 38.
New Section 38 provides for amended/new auto-generated statement (like existing GSTR-2B)
where details of inward supplies is communicated to the taxpayer with a bifurcation as to which ITC
is admissible to the taxpayer and what all ITC cannot be taken by a taxpayer owing to reasons, such
as –
a. Vendor/Supplier has defaulted in payment of output taxes; or,
b. Output tax shown by vendor/supplier in its GSTR-1 exceeds by output tax shown in GSTR3B by a
prescribed limit; or,
c. Vendor has availed ITC more than what is admissible to him, by a prescribed limit.
The list of ineligible ITC as mentioned in GSTR-2B would not be allowed as ITC from the notified
date.

In line with this amendment in Section 38, a new condition is proposed to be added in Section 16(2),
which provides for condition for availing ITC and clause (ba) provides that only such ITC can be
availed by a taxpayer which has been shown as admissible in amended statement.
2.5 Condition 5: Tax charged on supply actually paid to the Government
Subject to the provisions of section 41 or or section 43A, the tax charged on the goods or services or
both have been paid to the Government either through utilization of credit balance available or
through cash.
Omission of section 43A in clause (c) of section 16(2) has been proposed by Finance Bill, 2022. The
proposed amendment is in consonance with omission of Section 43A under Clause 106 of
Finance Bill, 2022.
2.6 Condition 6: Filing of Return
The recipient taking the Input tax credit must have filed his return under section 39 (GSTR- 3B).
Other Conditions
3. ITC NOT ADMISSIBLE IF DEPRECIATION IS CLAIMED ON TAX COMPONENT AS

PER SECTION 16(3)
Where a registered person has claimed depreciation on the tax component of the capital goods and
plant and machinery, the input tax credit of such tax component shall not be allowed. Thus in respect
of tax paid on such items, dual benefit cannot be claimed under Income Tax Act, 1961 and GST laws
simultaneously.
4. TIME LIMIT FOR AVAILING ITC U/S 16(4)
Existing provision
A registered person shall not be entitled to take input tax credit in respect of any invoice or debit
note for supply of goods or services or both after the due date of furnishing of the return under
section 39 for the month of September following the end of financial year to which such invoice or
debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Proposed amendment by THE FINANCE BILL,2022 dated 01.02.2022
A registered person shall not be entitled to take input tax credit in respect of any invoice or debit
note for supply of goods or services or both after the due date of furnishing of the return under
section 39 for the month of September thirtieth day of November following the end of financial year
to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever
is earlier.
Comment
The proposed amendment seeks to increase the time limit for availment of ITC in respect of any
invoice or debit note pertaining to a financial year. Earlier, the cut-off date for claim of credit was
the due date of furnishing the GSTR-3B return for the month of September following the end of the
financial year to which such invoice or debit note pertains or furnishing of the annual return,
whichever is earlier. Now, it is proposed to be 30th November of the following financial year or the
actual date of furnishing of the annual return, whichever is earlier.
To illustrate: ITC in respect of invoice dated 15th March 2023 (F/Y 2022-23) will not be available
for availment after 30th November 2023, provided annual return has not been furnished upto
30.11.2023.
Note: There is no time limit on utilisation of ITC against output tax, once availed within time.
Relevant Case Laws
1. Manufacturer of goods chargeable to nil duty, is eligible to avail ITC paid on

inputs, which were used in manufacture of goods exported and claim refund
SUPREME COURT OF INDIA in the matter of Commissioner of Central Excise,

Chandigarh v. Drish Shoes Ltd referred in 2015 (322) E.L.T. A112 (S.C.) held that a
manufacturer who exported final products which were exempt from duty, could claim refund of
CENVAT credit of duty paid on inputs and inputs services used in manufacture and export of said
wholly exempted final products.
3.0 Apportionment of credit and blocked credits
3.1 Credit admissibility if goods and/or services are used for providing both
business as well as non-business purpose (Section 17(1))
Where the goods or services or both are used by the registered person for both business purposes as
well as other purposes, the amount of input tax credit available shall be restricted to so much of the
amount as is attributable to the purpose of his business.
3.2 Credit admissibility if goods and/or services are used for providing both taxable
as well as exempted supplies (Section 17(2))
Where the registered person provides both taxable including zero-rated supplies as well as exempt
supplies, the amount of input tax credit in relation to goods and services used for providing both
exempted and taxable supplies shall be restricted to so much of input tax credit which relates to
taxable supplies only.
3.3. Availability of Input Tax Credit in case of Zero Rated Supplies
 The credit of input taxes paid in relation to inputs or input services used in effecting zero-
rated supplies shall be allowed even if such supply is an exempt supply.
 Where Zero-rated supply as per section 16(1) of IGST Act’2017 means any of the following
supplies of goods or services or both, namely: ––
(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic
Zone unit.
3.4 Availability of Input Tax Credit in case of Deemed Exports
 As per the provisions of Section 147 read with Notification No. 48/2017-Central Tax dated
18/10/17, the Government on the recommendations of the Council has notified certain
supplies of goods as deemed exports, where goods supplied do not leave India, and payment
for such supplies is received either in Indian rupees or in convertible foreign exchange if such
goods are manufactured in India.
 The following shall be considered as deemed exports:
Sr. Description of Supply
No.
1. Supply of goods by a registered person against Advance Authorisation
2. Supply of capital goods by a registered person against Export Promotion Capital Goods
Authorisation
3. Supply of goods by a registered person to Export Oriented Unit
4. Supply of gold by a bank or Public-Sector Undertaking against Advance Authorisation.
3.5 Determination of the value of Exempt Supply (Section 17(3))
 “exempt supply” means supply of any goods or services or both which attracts nil rate of tax
or which may be wholly exempt from tax under section 11, or under section 6 of the
Integrated Goods and Services Tax Act, and includes non-taxable supply;
 Inclusions in the Value of Exempt supply:
1. Supplies on which recipient is liable to pay tax under reverse charge,

2. Transaction in securities (value shall be 1% of sale value),
3. Sale of land (value shall be the same as adopted for the purpose of paying stamp duty)
4. Sale of building subject to para 5(b) of schedule II (value shall be the same as adopted for the
purpose of paying stamp duty)
Para 5(b) of schedule II states as follows Construction of a complex, building, civil structure or a part
thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where
the entire consideration has been received after issuance of completion certificate, where required,
by the competent authority or after its first occupation, whichever is earlier.
 Exclusions from the Value of Exempt Supply:
1. Supply of services having place of supply in Nepal and Bhutan against payment in Indian
Rupees
2. the value of services by way of accepting deposits, extending loans or advances in so far as the
consideration is represented by way of interest or discount, except in case of a banking
company or a financial institution including a non-banking financial company, engaged in
supplying services by way of accepting deposits, extending loans or advances; and
3. the value of supply of services by way of transportation of goods by a vessel from the customs
station of clearance in India to a place outside India.

4. Rule 42 & Rule 43 of Central Goods and Services Tax Rules, 2017 prescribed the
manner of determination of input tax credit reversal thereof
The amount of input tax credit which needs to be reversed shall be calculated on the basis of the
ratio of exempt turnover to total turnover multiplied by the common input tax credit.
Further, in case of “real estate services” input tax credit which needs to be reversed is calculated in
proportion of exempt carpet area to total carpet area multiplied by the common input tax credit.
Where common input tax credit shall be the credit in relation to the inputs and input services used
for effecting both taxable and exempt supplies.
Further, an additional reversal of 5% of the common inputs also needs to be done in relation to
inputs and input services used for both business and non-business purposes.
An analysis of Rule 42 and 43 of CGST Rules, 2017 is discussed in next paras:
4.1 Rule 42: Determination of Input Tax Credit in respect of Input & Input Services
and its reversal in normal cases (i.e. supplies other than real estate services):
In case where the taxable person is providing taxable as well as non-taxable supplies, eligible ITC
shall be calculated as below:
Step 1 Calculate Total Input Tax in a tax period, which should be the total of all type of taxes
paid on inward supplies and is denoted as “T”.
Out of the total input tax credit (T) on inputs and input services, the ineligible credits
shall be T1 + T2 + T3 and eligible credits shall be T4 which would be as follows-
Step 2 Taxes paid for supplies used exclusively for purposes other than business, denoted as
“T1”.
Step 3 Taxes paid for supplies used exclusively for effecting Exempted supplies, denoted as
“T2”
Step 4 Taxes paid for supplies on which credit is not available under Section 17(5), denoted
as “T3”
Step 5 Amount of ITC credited to Electronic Credit Ledger of Registered Person, denoted as
“C1” i.e. C1 = T- (T1 + T2 + T3)
Step 6 ITC on supplies other than Exempted but including Zero-rated supplies, denoted as
“T4”. This credit purely for business purposes and fully eligible as ITC.
Step 7 Common Input Tax Credit on inward supplies used for taxable as well as
exempted outward supplies denoted as “C2” i.e. C2 = C1 – T4
Step 8 ITC attributable towards exempted supplies, denoted as “D1” i.e. D1 = (E/F) * C2
Step-9 If common ITC [C2] is used for both Business as well as Non-Business purposes then
ITC attributable to Non-Business purpose shall be 5% of Common Credit and is
denoted as D2 i.e. D2= C2*5%
Step-10 The balance of the common credit shall be the eligible credit out of the common credit
deemed as used for business purposes and is denoted as C3 i.e. C3= C2-(D1+D2)
Step-11 The amounts of T1, T2, T3 are ineligible credits.
Step-12 C3 to be computed separately for CGST, SGST, UTGST and IGST

where- E = Aggregate value of Exempted Supplies during the Tax Period & F = Total Turnover in
the state of the Registered person during the Tax period
Calculation to be done at the end of the financial year
 Credit calculated on provisional basis in respect of D1 and D2 shall be computed finally before
due date of filing returns for the month of September following the end of the FY to which
credit relates.
 In case amount calculated exceeds the provisional calculation the differential amount shall
be added to the output tax liability
 Interest from the month of April of next FY till the date of payment to be paid
 In case amount finally calculated is short of the provisional calculation, the differential
amount shall be taken as credit in the month of September
It is to be noted that the reversal to be done at the end of the financial year is only applicable for
Rule 42
EXAMPLE:
A ltd. Is a company providing taxable as well as exempted services. Turnover of A ltd. For the period
of November 2020 is as under:
Particulars Rs.
Value of taxable supply of service 70,00,000
Value of exempt supply of service 24,00,000
Value of zero-rated supply of service 20,00,000
Value of service made for personal use 6,00,000
Details of ITC for the month:
Particulars CGST Paid (Rs.) SGST Paid (Rs.) IGST Paid (Rs.)
Total ITC available 2,30,000 2,30,000 1,20,000
The above ITC on input service
includes:
Credit on input services exclusively 40,000 40,000 16,000
used for supplying exempt services
Credit on input services exclusively 1,12,000 1,12,000 6,000
used for supplying taxable services
(including zero-rated supplies)
Credit availed on inputs which are 38,000 38,000 14,000
ineligible under section 17(5)
Credit on input service exclusively used 21,800 21,800 10,400
for personal use
CALCULATE:
 Entitlement of ITC of A ltd. For the month of November 2020 under rule 42 of CGST rules.
 The amount to be added to the output tax liability of A ltd
Solution
 Computation of ITC eligible for tax period November 2020:

Particulars CGST(Rs.) SGST (Rs.) IGST (Rs.)
Total TC in a tax period [T] 2,30,000 2,30,000 1,20,000
Less:
Credit on input service exclusively used 21,800 21,800 10,400
for personal use [T1]
Credit on input services exclusively used 40,000 40,000 16,000
for supplying exempt services [T2]
Credit availed on inputs which are 38,000 38,000 14,000
ineligible under section 17(5) [T3]
Amount of ITC [C1]
C1 = T- [T1 + T2 + T3] 1,30,200 1,30,200 79,600
Less:
Credit on input services 1,12,000 1,12,000 6,000
exclusively used for supplying
taxable services (including zero-
rated) [T4]
Common credit of input and input 18200 18200 73600
services used for providing supply of
services [C2]
C2= C1-T4
Total inadmissible common credit as per 4550 4550 18400
rule 42(1) [D1+ D2] [W/N1]
Net eligible common credit C3= 13650 13650 55200
C2- [D1+D2]
Total eligible credit [T4+ C3] 125650 125650 61200
2) Amount to be added to output 4550 4550 18400

tax liability [D1 + D2]
Working note 1: Calculation of amount of ITC towards exempt supplies and supplies
made for non- business use:
Particulars CGST SGST IGST (Rs.)

(Rs.) (Rs.)
Aggregate value of exempt supply of service[E] 24,00,000 24,00,000 24,00,000
Total turnover for Nov 2020 1,20,00,000 1,20,00,000 1,20,00,000
Credit attributable towards exempt supplies 3640 3640 14720
D1= [E/F] *C2
Credit attributable for supplies made towards non business 910 910 3680
purpose as per clause (j) of rule 42(1)

D2= C2*5%
Total inadmissible common credit as per rule 42(1) 4550 4550 18400
D1+D2
4.1.1 Rule 42-Determination of Input Tax Credit in respect of Input & Input Services
and its reversal in case of Real Estate Projects covered by clause (b) of paragraph 5 of
Schedule II of the CGST Act, 2017:
From the point of reversal of ITC in respect of Real Estate Projects, Rule 42 of CGST rules can be
bifurcated into two parts:
1. Provisional Reversal
2. Final reversal
Calculation of both reversals is given hereunder:
1. Calculation of Provisional ITC reversal in case of Real Estate Projects:

Step 1 Calculate Total Input Tax in a tax period, which should be the total of all type of taxes
paid on inward supplies and is denoted as “T”.
Out of the total input tax credit (T) on inputs and input services, the ineligible credits
shall be T1 + T2 + T3 and eligible credits shall be T4 which would be as follows-
Step 2 Taxes paid for supplies used exclusively for purposes other than business, denoted as
“T1”.
Step 3 Taxes paid for supplies used exclusively for effecting Exempted supplies, denoted as
“T2”
Step 4 Taxes paid for supplies on which credit is not available under Section 17(5), denoted
as “T3”
Step 5 Amount of ITC credited to Electronic Credit Ledger of Registered Person, denoted as
“C1” i.e. C1 = T- (T1 + T2 + T3)
Step 6 ITC on supplies other than exempted but including Zero-rated supplies, denoted as
“T4”. This credit shall be considered as ‘zero’ in case of covered by clause (b) of
paragraph 5 of Schedule II of the CGST Act, 2017.
Step 7 Common Input Tax Credit on inward supplies used for taxable as well as
exempted outward supplies denoted as “C2” i.e. C2 = C1
Step 8 ITC attributable towards exempted supplies, denoted as “D1” i.e. D1 = (E/F) * C2
Step-9 If common ITC [C2] is used for both Business as well as Non-Business purposes then
ITC attributable to Non-Business purpose shall be 5% of Common Credit and is
denoted as D2 i.e. D2= C2*5%
Step-10 The balance of the common credit shall be the eligible credit out of the common credit
deemed as used for business purposes and is denoted as C3 i.e. C3= C2-(D1+D2)
Step-11 The amounts of T1, T2, T3 are ineligible credits.
Step-12 C3 to be computed separately for CGST, SGST, UTGST and IGST
where-

E=aggregate carpet area of the apartments which exempt is from tax + aggregate carpet area of the
apartments which is not exempt but identified by the promoter to be sold after issue of CC/first
Occupation
F= Aggregate carpet area of the apartments in the project
It may be noted here 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.
4.2 Rule 43: Determination of Input Tax Credit in respect of Capital Goods and its
reversal of the
Where capital goods are used partly for the purpose of business and partly for other purposes or
partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt
supplies, the input tax credit on such capital goods is restricted to the credit attributable to taxable
supplies or to the extent used in course or furtherance of business. Balance credit on such capital
goods which is used for non- business/ personal purpose or for non-taxable/exempt supplies needs
to be reversed.
Section 43 of CGST Rules prescribed the method for calculation of common credit and its reversal
which is attributable to exempt supplies or for non-business use.
Rule 43
Input tax in respect of capital goods used or intended to be used Not-eligible and shall not be
exclusively for non-business purposes or used or intended to be used credited to electronic credit
exclusively for effecting exempt supplies ledger
Input tax in respect of capital goods used or intended to be used Fully eligible and shall be
exclusively for effecting supplies other than exempted supplies but credited to electronic credit
including zero-rated supplies ledger.
It shall be considered as
‘zero’ for real estate projects.
Input tax credit in relation to capital goods other than the above A
(Useful life=5 years from the date of invoice)
Note: ITC in respect of real estate projects will be covered here.
Aggregate of A: common credit in respect of capital goods Tc

credited to electronic credit ledger
Amount of common ITC attributable to a tax period (Tm= Tc/60) Tm
Common ITC at the beginning of a tax period pertaining to CG whose Tr
useful life remains during the tax period (aggregate of Tm)

Amount of common credit attributable towards exempted supplies Te
Te=(E/F) *Tr
Where, ‘E’ is the aggregate value of exempt supplies, made, during the tax period, and
‘F’ is the total turnover of the registered person during the tax period
‘E’ and ‘F’ for real estate supplies:
E=aggregate carpet area of the apartments which is exempt from tax + aggregate carpet area of the
apartments which is not exempt from tax, but are identified by the promoter to be sold after issue
of Completion Certificate/first occupation
F=aggregate carpet area of the apartments in the project
Note: 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/first occupation.
4.2.1 Rule 43: Determination of Input Tax Credit in respect of Capital Goods and its
reversal
Where capital goods are used partly for the purpose of business and partly for other purposes or
partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt
supplies, the input tax credit on such capital goods is restricted to the credit attributable to taxable
supplies or to the extent used in course or furtherance of business. Balance credit on such capital
goods which is used for non- business/ personal purpose or for non-taxable/exempt supplies needs
to be reversed.
Section 43 of CGST Rules prescribed the method for calculation of common credit and its reversal
which is attributable to exempt supplies or for non-business use.
Rule 43
Input tax in respect of capital goods used or intended to be used Not-eligible and shall not be
exclusively for non-business purposes or used or intended to be used credited to electronic credit
exclusively for effecting exempt supplies ledger
Input tax in respect of capital goods used or intended to be used Fully eligible and shall be
exclusively for effecting supplies other than exempted supplies but credited to electronic credit
including zero-rated supplies ledger
Input tax credit in relation to capital goods other than the above A (Useful life=5 years from
the date of invoice)
Aggregate of A: common credit in respect of capital goods Tc
credited to electronic credit ledger
Amount of common ITC attributable to a tax period (Tm= Tc/60) Tm
Common ITC at the beginning of a tax period pertaining to CG whose Tr
useful life remains during the tax period (aggregate of Tm)
Amount of common credit attributable towards exempted supplies Te
Te=(E/F) *Tr
Where, ‘E’ is the aggregate value of exempt supplies, made, during the tax period, and
‘F’ is the total turnover of the registered person during the tax period

Thus, the above method can be explained as under-
1. The first step would be to bifurcate input tax credit into following heads-
(A) Non eligible ITC on capital goods
 used exclusively for Non-business supplies

 used exclusively for exempt supplies
 Blocked Credit U/s 17(5) of CGST Act,2017 (Not mentioned in Rule 43 but needs to be
considered)
In all the above cases, since the ITC is not available, the same shall not be credited to the electronic
credit ledger. Hence, in these cases the Assessee has the option to claim depreciation under the
Income Tax Act, 1961 on the portion of ITC also.
(B) Eligible ITC on capital goods
 used exclusively for Taxable supplies including zero- rated supply
In the above case, the ITC shall be credited to the electronic credit ledger and the Assessee is
restricted to claim depreciation on the portion of credit as per section 16(3) of CGST Act.
(C) Credit used commonly for taxable/business and exempt/non-business supplies

[Tc ]
Pro-rata reversal required for common credit on capital goods used commonly for taxable/business
and exempt/non-business supplies on the basis of turnover.
2. Computation of Common ITC attributable to a tax period [Tm ]
Common ITC for a month= Common ITC / 60
(Tm = Tc / 60)
The life of a capital good is presumed to be of five years i.e., 60 months from the date of invoice.
3. Computation of Common ITC at the beginning of a tax period pertaining to CG whose useful life
remains during the tax period [Tr ]
Aggregate of Tm
4. Computation of ITC belong to exempt supplies [Te ]
= (E/F) *Tr
= (Exempted Turnover/ Total Turnover during tax period) * Common credit

Now, the amount Te along with the applicable interest shall, during every tax period of the useful
life of the concerned capital goods, be added to the output tax liability/paid through GSTR-3B/DRC-
03 of the person making such claim of credit.
It is also to be noted that the amount Te 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.
Additional points to be noted with respect to reversal pertaining to capital goods
Where capital goods earlier used for non-business purpose or for effecting exempt supplies are now
being used for effecting both taxable as well as exempt supplies, the value of common ITC to be
added to ‘A’ shall be taken after reducing the input tax at the rate of five percentage points for every
quarter or part thereof.
Where capital goods earlier used for effecting taxable supplies (including zero-rated supplies) other
than exempt supplies are now being used for effecting both taxable as well as exempt supplies, the
value of common ITC to be added to ‘A’ shall be taken after reducing the input tax at the rate of five
percentage points for every quarter or part thereof.
Example:
PQR ltd provide the following turnover detail for the month of September 2020. It is a registered
entity providing both taxable as well as exempt services:
Particulars Rs.
Value of exempted supply of service 11,00,000
Value of taxable supply of service 15,00,000
Value of zero-rated supply of service 6,00,000
Detail of ITC on capital goods for the month of September 2020:
Particulars CGST@9% SGST@9% Total

The ITC on capital goods is as follow:
Credit on capital goods exclusively used for 12,600 12,600 25,200
supplying exempted goods
supplying taxable goods (including zero-rated
supplies)
supplying goods for personal use
Details of ITC on capital goods used partly for exempt services, partly for taxable
services and partly for personal use for the month of September:
Capital goods Value of inward supply (excluding CGST@9% SGS

CGST and SGST)
A 6,00,000 54,000 54,0

B 2,65,000 23,850 23,85
C 4,85,000 43,650 43,65
Total 1,21,500 1,21,
Determine the credit on capital goods attributable for the month of September, 2020:
Particulars CGST@9% SGST@9%

Credit on capital goods exclusively used for supplying 12,600 12,600
exempted goods
(The amount of input tax in respect of capital goods used
exclusively for effecting exempt supplies shall be indicated in
FORM GSTR-2 and shall not be credited to electronic credit
ledger)
taxable supplies (including zero-rated)
exclusively for supplying taxable supplies including zero-rated
shall be indicated in FORM GSTR-2 and shall be credited to
electronic credit ledger)
goods for non-business use
exclusively for non-business purpose shall be indicated in
FORM GSTR-2 and shall not be credited to electronic credit
ledger)
Credit on capital goods used for supplying taxable as 1,21,500 1,21,500
well as exempt supplies
(Shall be credited to electronic credit ledger and the useful life
of such good shall be taken as 5 years/60 months) [A] Tc
Amount of ITC attributable to the month of September, 2025 2025
2020 on common capital goods during their residual
life
Tm= Tc/60
Amount of ITC on capital goods whose residual life 2025 2025
remains in the beginning of tax period i.e. September,
2020 (Tr) [W/N]
Amount of common credit attributable towards 696 696
exempt supplies to be added to output tax liability/to
be reversed (Te)
Te = Tr *(Value of exempt supply and supply made for
non-business use during tax period / total value of
supply during tax period
[(2025*11,00,000/32,00,000]

Total credit on capital goods attributable for tax period 43,329 43,329
September, 2020 [42,000 + 2025 – 696]
Working note:
Calculation of ITC on capital goods whose residual life remains during the tax period:
Tr = Tm/60
Capital Value of inward CGST@9% SGST@9% ITC attributable For 1 month

goods supplies (excluding (Tc) (Tc)
CGST AND SGST) (Tr = aggregate of Tm)
CGST @ 9% SGST @ 9%
Tm = Tc/60 Tm = Tc/60
A 6,00,000 54,000 54,000 900 900
B 2,65,000 23,850 23,850 397.5 397.5
C 4,85,000 43,650 43,650 727.5 727.5
Total 1,21,500 1,21,500 2025 2025
5. Special Credit provisions for Banking Companies or a Financial Institutions

including a Non- Banking Financial Company (Section 17(4))
As per GST Act, where a banking company or a financial institution including a non-banking
financial company engaged in supplying services by way of accepting deposits, extending loans or
advances is receiving goods and/or services partly for effecting taxable supplies including zero rated
supplies and partly for effecting exempted supplies, then it shall have two options for the reversal of
their credit-
1. One option is given under section 17(4) read with Rule 38 of the CGST Rules,
2017 and
2. another is general procedure given in section 17(2) read Rule 42 of the CGST
Rules, 2017.
Option 1:
5.1 Determination of Input Tax Credit in respect of inputs and input services and its
reversal:
As per section 17(4) read with Rule 38 of the CGST Rules, 2017, the banking sector has the option to
avail for every month, an amount of 50% of the eligible input tax credit on the inputs, capital goods
and input services in that month and the remaining 50% input tax credit shall lapse.
However, the said company or institution shall not avail the credit of:
 Tax paid on inputs and input services that are used for non-business purposes
 Blocked credit specified under Section 17(5)

Further, restriction of 50% shall not be applicable to the tax paid on supplies made by bank to any
another registered person having the same PAN.
5.2 Real Estate Sector
Special provisions related to manner of determination of credit and reversal thereof

for Developers/Builders
The provisions under GST related to Real Estate Sector regarding taxability and input tax credit has
changed from 1st April 2019.
Let us first understand the Scope of Supply related to the said sector.
As per para 5(b) of Schedule II of CGST Act, 2017 “construction of a complex, building, civil
structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or
partly, except where the entire consideration has been received after issuance of completion
certificate, where required, by the competent authority or after its first occupation, whichever is
earlier” is treated as service.
Further, as per para 5 of Schedule III of CGST Act, 2017 “Sale of land and, subject to clause
(b) of paragraph 5 of Schedule II, sale of building” are excluded from the scope of GST law.
Hence, Supply of Real Estate service is taxable in case any part of consideration is received till the
builder receives completion certificate (“CC”) or occupation certificate (“OC”). It becomes exempt
service where entire consideration is received after obtaining completion certificate (“CC”) or
occupation certificate (“OC”) and reversal of Input Tax Credit is required to be made on the date of
completion of project.
Such reversal should be as per the provisions of Section 17 of CGST Act’2017 read with Rule 42 and
43 of CGST Rules. Rule 42 in respect of reversal of credit on Inputs & Input services and Rule 43 in
respect of reversal of credit on Capital goods should be followed.
Central Government vide Notification No. 16/2019-Central Tax dated 29th March
2019 effective from
1st April 2019 has introduced specific provisions for determination of Input credit and reversal
thereof.
As per Section 17(3) of CGST Act, value of exempt supply shall include sale of building where
supply is made after obtaining completion certificate. It also consider that apportionment of ITC
between exempt and taxable supplies shall be on the basis of Value.
However, on service of real estate of residential and commercial apartments such apportionment
shall be on basis of area of construction of complex. (Removal of Difficulties Order
No.04/2019-CT dated 29.3.2019 provides that such apportionment shall be on basis of area of
construction of complex w.e.f. 01.04.2019).
The first proviso to Rule 42(i) of CGST Rules, 2017 inserted w.e.f. 01.04.2019, also states that such
reversal will be on the basis of carpet area and not on basis of value
6. Blocked Credit u/s 17(5)-
Following are the entries on which ITC cannot be availed:
1. Motor Vehicles and other conveyances and related services

(insurance, servicing and repair and maintenance)
(i) Motor Vehicles
(a) ITC Allowed When such motor vehicles are used for making following taxable
supplies:
Further supply of such motor vehicles (Sale, transfer,


barter etc.);
 Transportation of passengers (Taxi Business);
 Impart of training on driving motor vehicles (Driving
School).
(b) ITC Blocked Motor vehicles used for transportation of persons with seating
capacity
≤13 persons (including driver) and such motor vehicles are not
covered under serial number (a) above.
 ITC on any other motor vehicles used for any purpose is allowed.
Ex: Motor vehicles used for transportation of goods, dumpers, trippers etc.
(ii) Aircrafts and Vessels
(a) ITC Allowed Vehicles & aircraft when used for making following taxable supplies:
Further supply of such aircraft or vessels ((Sale, transfer,


barter etc.);
 Transportation of passengers & goods;
 Impart training on navigating such aircrafts or vessels;
 Impart training on flying such aircrafts or vessels.
(b) ITC Blocked Other than specified eligible purposes
(iii) Insurance, servicing, Repair & Maintenance relating to Motor Vehicles,
Aircrafts and Vessels
(a) ITC Allowed  Such services relating to Motor vehicles or vessels & aircrafts on
which ITC is allowed.
 Such services when received by a taxable person engaged:
(i) In manufacture of such motor vehicles, vessels or aircrafts; or
(ii) In supply of Insurance services in respect of such motor vehicles or

vessels or aircrafts insured by him.
(iv) Leasing, renting or hiring of Motor Vehicles, Aircrafts and Vessels
(a) ITC Allowed  Such services relating to Motor vehicles or vessels & aircrafts on
which ITC is allowed.
 Such services are provided to employees under statutory
obligation.
 Such services are used by the taxpayer who is in the same line of
business (sub-contracting).

 Such services are used for making an outward taxable supply of
same category of service.

Illustration
Business Transaction Allowability Explanation

of ITC
ABC Ltd. purchased cars for Not Allowed ITC on motor vehicles for transportation of
employees’ official use passengers with capacity ≤ 13 persons (including
driver) is blocked if not for specified purpose.
A transportation Company Allowed Transport company uses cars for making further
purchased cars=for supply of transportation of passengers, hence credit
transportation of passengers is allowed
A Car dealer purchased cars Allowed A car dealer uses cars for further supply , hence
for further supply from its credit is allowed
showroom
ABC Ltd. purchased aircraft Not Allowed ITC on aircrafts for transportation of passengers is
for official use of its CEO blocked if not for specified purpose.
PQR Ltd. purchased buses for Allowed ITC on motor vehicles for transportation of
daily commuting of passengers with capacity > 13 persons (including
employees from their driver) is allowed.
residence to office and back.
XYZ Ltd. purchased trucks for Allowed Company uses trucks for making further supply of
transportation of finished transportation of goods, hence credit is allowed
goods
A car driving school Allowed When motor vehicles used for imparting training
purchased cars for imparting credit is allowed
training
An Aviation school purchased Allowed Aviation school uses aircrafts for imparting training
aircrafts for imparting on flying aircrafts hence credit is allowed
training on flying aircrafts
ABC Ltd taken general Allowed When company take general insurance on cars
insurance on cars manufactured by them, credit is allowed
manufactured by them
ABC Ltd. taken general Not Allowed General insurance on cars purchased, for employees’
insurance on cars purchased official use, with capacity ≤ 13 persons (including
by them for driver) is blocked if not for specified purpose.
employees’ official use
PQR Ltd. taken repair & Allowed Credit on Repair and maintenance service for trucks
maintenance service for a used for transportation of finished goods is allowed
truck used for transporting its
finished goods.
ABC Ltd. uses cab services for Not Allowed ITC on motor vehicles hired for transportation of
onsite visit of its employees passengers with capacity ≤ 13 persons (including
driver) is not allowed.

ABC Ltd. used trucks for the Allowed ITC on motor vehicles used for transportation of
transport of raw material goods is allowed.
Q.2. Foods & beverages, outdoor catering, health services and others
(i) Foods & beverages, outdoor catering, health services, Beauty treatment, Cosmetic
and plastic surgery, Life insurance and health insurance
(a) ITC Allowed  Such services are provided to employees under statutory
obligation.
 Such services are used for making an outward taxable supply of
same category of service.
 Such services are used by the taxpayer who is in the same line of
business (sub-contracting).
(b) ITC Blocked Other than specified above
(ii) Membership of a club, Health and fitness centre
(a) ITC Allowed Such services are provided to employees under statutory obligation.
(b) ITC Blocked Such services are provided to employees without any statutory
obligation.
(iii) Travel benefits to employees
(a) ITC Allowed Such services are provided to employees under statutory obligation.
(b) ITC Blocked Travel benefits extended to employees on vacation [Ex: LTC].
Illustrations

of ITC
ABC Ltd. purchases foods Not Allowed Credit is not allowed since service are not used for
items for being served to its making outward taxable supply
customers, free of cost
A Shoe exporter uses outdoor Not Allowed Since outdoor catering service is not used for making
catering services for a outward taxable supply, credit is blocked
marketing event organized for
customers
PQR Ltd. uses outdoor Allowed The Factories Act, 1948 requires companies to set up
catering service to run a free a canteen in factory, hence credit is allowed
canteen in its factory
ABC Ltd. pays monthly Not Allowed It is not an obligatory service, hence credit is blocked
membership fees of a club for
the MD of the company
ABC Ltd avails services of a Not Allowed Only Travel benefits provided under statutory
travel agency for organising a obligation are allowed, hence credit is not allowed.
free vacation for its selected
employees
XYZ Ltd. buys confectionery Not Allowed Confectionery items are neither provided under
items for consumption of statutory obligation nor for making outward taxable
employees working in the supply, hence credit is blocked.
factory

Q3. Calculate ITC eligible for a supplier manufacturer.
IGST paid on input services used for business purposes 9000

IGST paid on capital goods used for business purposes 45000
IGST paid on input used for business purposes 50000
IGST paid on input used for exempt supply 8000
IGST paid on input used for personal purposes 2000
IGST paid on input lost, destroyed by fire 1500
IGST paid by supplier due to fraud, suppression of facts u/s 74 2700
IGST paid on input stolen or written off 4000
Motor vehicle i.e. bus purchased for pick & drop of employees 1000
Motor vehicle i.e. truck purchased for transport of raw material & finished 3500
goods
Ans. Calculation of input tax credit
IGST paid on input services used for business purposes 9000

IGST paid on capital goods used for business purposes 45000
IGST paid on input used for business purposes 50000
IGST paid on input used for exempt supply —
IGST paid on input used for personal purposes —
IGST paid on input lost, destroyed by fire —
IGST paid by supplier due to fraud, suppression of facts u/s 74 —
IGST paid on input stolen or written off —
Motor vehicle i.e. bus purchased for pick & drop of employees 1000
Motor vehicle i.e. truck purchased for transport of raw material & finished 3500
goods
Total 108500
Q4. Determine credit available from following details
CGST SGST
Beauty treatment, Cosmetic/ plastic surgery, Health service 3500 3500
received for front office counselor
Food and Beverage served during meeting 4000 4000
Life insurance & health insurance premium paid for policy taken 3000 3000
for employees
Rent-a-cab service received for pick & drop of employees of 4000 4000
company
Goods received from composite dealer who paid tax under 7000 7000
composition scheme
Work contract service received for construction of immovable 2700 2700
GST paid on travel benefit extended to employee on vacation 5500 5500

Goods and services received for construction of immovable 1600 1600
property facility
Ans. No credit in all the above cases, since sec 17(5) denies credit in all such cases.
3. Works contract for construction of immovable property

(a) ITC Allowed  It is Input service for further supply of work contract service
(sub-contracting). [only work contractor can avail ITC on works
contract services]
 ITC on works contract services used for construction of such
Plant & Machinery is allowed.
 When value of works contract service is not capitalized, ITC is
allowed to all recipients irrespective of Business.
(b) ITC Blocked Other than above specified eligible purposes
Plant and machinery means:
 apparatus, equipment, and machinery fixed to earth by foundation or structural

support that are used for making outward supply of goods or services or both and
 includes such foundation and structural supports
 but excludes:
(i) land, building or any other civil structures
(ii) telecommunication towers and
(iii) pipelines laid outside the factory premises
Illustrations

of ITC
ABC Ltd. used work contract Allowed Since work contract service is used for construction
service for the construction of of plant and machinery, ITC is allowed
a foundation on which a
machinery is to be mounted
permanently
P Ltd received a contract for Allowed ITC can be allowed as works contract services here is
the construction of a mall. an input service for further supply of works contract
They Sub-contracted a part to service.
Q Ltd.
XY Ltd used a works contract Not Allowed Work contract service is used for construction of
service for the construction of immovable property other than Plant & Machinery,
its office hence ITC is Blocked.
PQ Ltd availed service of a Not Allowed Construction includes re-construction, renovation,
builder for renovating his additions or alterations or repair. ITC on these is
office. GST charged on invoice blocked to the extent of capitalization.

was capitalized in the books of
PQ Ltd.
ABC Ltd used work contract Not Allowed Work contract service is used for construction of
service for construction of immovable property other than Plant & Machinery,
pipelines to be laid outside its hence ITC is Blocked.
factory
XY Ltd. availed service of Allowed ITC on repairs, expense of which is not capitalized, is
work contractor for the allowed.
repairs of building. Company
booked such expenditure in P
& L A/c
4. Goods or Services or received by taxable person for construction of immovable
property
(a) ITC Allowed  For the construction of Plant & Machinery
 When value of goods and/or services is not capitalized
 When construction is not on own account.
(b) ITC Blocked Other than above specified eligible purposes
Illustration

of ITC
ABC Ltd. availed services of an Not Allowed Services are used for the construction of immovable
architect for construction of property on own account, hence ITC is blocked
office building
A Ltd. availed services of an Allowed Services are used for the construction of immovable
interior designer for its office property and expenses on such service are not
and booked such expenditure capitalized, hence ITC is allowed.
In P&L A/c
5. Inward supplies charged to tax under composition levy:
ITC on goods and/or services on which tax is paid under composition scheme is not allowed.
6. Inward supplies received by a Non-resident taxable person (NRTP):
ITC on goods imported by NRTP is allowed but ITC on services imported by him is blocked.
7. Inward supplies used for personal consumption:
ITC on goods and/or services used for personal consumption is not allowed.
8. Free samples, gifts, goods lost/ stolen etc:
Where the activity of distribution of gifts or free samples falls within the scope of ‘supply’ in
Schedule I of CGST Act, ITC is allowed.
9. Tax paid in fraud cases, detention, confiscation etc.:
Any tax paid in accordance with the provisions of sections 74, 129 & 130, ITC is not allowed.
Sec 74: Determination of tax not paid or short paid or erroneously refunded or input tax
credit wrongly availed or utilized by reason of fraud or any willful- misstatement or
suppression of facts;

Sec 129:Detention, seizure and release of goods and conveyances in transit;
Sec 130: Confiscation of goods or conveyance and levy of penalty.
In other words, we can say that no registered person is permitted to avail any input tax
credit in respect of any tax that has been paid in pursuant to an order of demand on account
of fraud, willful misstatement, or suppression of fact.
of ITC
ABC Ltd. is a construction Not Allowed Since the goods are used for personal consumption
company. Managing Director of the Managing Director, ITC in respect of those 5
of the company has taken 5 packets of cement is not allowed.
packets of cement for his
personal use
P Ltd. paid tax under sec 129 Not Allowed Since tax is paid under section sec 129, hence credit
is blocked
Mr. A is a NRTP and he Allowed ITC on goods imported by a NRTP is allowed.
imported goods from USA

Chapter 7 Input Tax Credit Under GST

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Chapter 7 Input Tax Credit Under GST

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axoacademy

GST Certification Course

1. ELIGIBILITY FOR TAKING ITC U/S 16(1)

© TAXO Academy | Study Material Chapter 7 Page 1 of 27

2. CONDITIONS FOR TAKING ITC U/S 16(2)

2.1 Condition 1: Possession of Tax Invoice

© TAXO Academy | Study Material Chapter 7 Page 2 of 27

2.2 Condition 2: Detail of such invoices should be reflected in recipient’s GSTR-2B

Amendment in Rule 36(4)

1. furnished by the supplier in the statement of outward supplies in FORM GSTR-1

Before this Notification following provision was in force

© TAXO Academy | Study Material Chapter 7 Page 3 of 27

2.3 Condition 3: Receipt of goods or services or both

2.3.1 ITC in case of goods received in lots or instalments

 Supplies on which tax is payable under reverse charge

© TAXO Academy | Study Material Chapter 7 Page 5 of 27

 Date of Invoice = 1st August

2.4 Condition 4: ITC should not be restricted U/s 38

Proposed amendment vide Finance Bill,2022 dated 01.02.2022

© TAXO Academy | Study Material Chapter 7 Page 6 of 27

2.5 Condition 5: Tax charged on supply actually paid to the Government

2.6 Condition 6: Filing of Return

3. ITC NOT ADMISSIBLE IF DEPRECIATION IS CLAIMED ON TAX COMPONENT AS

4. TIME LIMIT FOR AVAILING ITC U/S 16(4)

Proposed amendment by THE FINANCE BILL,2022 dated 01.02.2022

Relevant Case Laws

1. Manufacturer of goods chargeable to nil duty, is eligible to avail ITC paid on

SUPREME COURT OF INDIA in the matter of Commissioner of Central Excise,

3.0 Apportionment of credit and blocked credits

3.3. Availability of Input Tax Credit in case of Zero Rated Supplies

(a) export of goods or services or both; or

© TAXO Academy | Study Material Chapter 7 Page 8 of 27

3.4 Availability of Input Tax Credit in case of Deemed Exports

3.5 Determination of the value of Exempt Supply (Section 17(3))

1. Supplies on which recipient is liable to pay tax under reverse charge,

 Exclusions from the Value of Exempt Supply:

© TAXO Academy | Study Material Chapter 7 Page 9 of 27

An analysis of Rule 42 and 43 of CGST Rules, 2017 is discussed in next paras:

© TAXO Academy | Study Material Chapter 7 Page 10 of 27

Calculation to be done at the end of the financial year

Details of ITC for the month:

 Computation of ITC eligible for tax period November 2020:

2) Amount to be added to output 4550 4550 18400

Particulars CGST SGST IGST (Rs.)

© TAXO Academy | Study Material Chapter 7 Page 12 of 27

Calculation of both reversals is given hereunder:

1. Calculation of Provisional ITC reversal in case of Real Estate Projects:

© TAXO Academy | Study Material Chapter 7 Page 13 of 27

F= Aggregate carpet area of the apartments in the project

(Useful life=5 years from the date of invoice)

Note: ITC in respect of real estate projects will be covered here.

Aggregate of A: common credit in respect of capital goods Tc

© TAXO Academy | Study Material Chapter 7 Page 14 of 27

F=aggregate carpet area of the apartments in the project

© TAXO Academy | Study Material Chapter 7 Page 15 of 27

(A) Non eligible ITC on capital goods

 used exclusively for Non-business supplies

(B) Eligible ITC on capital goods

 used exclusively for Taxable supplies including zero- rated supply

(C) Credit used commonly for taxable/business and exempt/non-business supplies

2. Computation of Common ITC attributable to a tax period [Tm ]

Common ITC for a month= Common ITC / 60

4. Computation of ITC belong to exempt supplies [Te ]