Home » GST » Understanding the apportionment of Input Tax Credit

Input Tax CreditSome GST tax payers are facing difficulty is understanding the apportionment of Input Tax Credit (ITC). Given below is the method to understand it.

1. Method of Apportionment of Input Tax Credit in case of goods or services or both (other than capital goods)

The input tax credit is available for taxable business supplies including zero rates supplies only. The Method to be followed for determination of input tax credit between taxable business supplies and exempt or supplies for other purposes can be explained as follow. (This computation should be done separately for IGST, CGST, SGST, and UTGST in every tax period.):-

1. Take the input tax credit amount as per the inward supplies and tax paid on reverse charge. The sum of this is the total available input tax credit amount.
2. Out of the Input Tax Credit as per para 1, the amount of input tax attributable to inputs and input services intended to be used related to the following be deducted and the balance to be credited to electronic credit ledger:

i) For purposes other than business.
ii) For effecting exempt supplies.
iii) For supplies on which credit is not available specifically like motor vehicle etc. 

The balance towards taxable supplies and supplies of common input credit will be credited electronic credit ledger.

3. Out of the credit to electronic credit ledger (para 2), obtain Input Tax Credit known as Common credit, after deducting Input tax credit attributable to inputs and input services intended to be used exclusively for effecting supplies, other than exempted supplies, including zero rated supplies. The balance available will be the credit available for common services.


4. Out of common credit as obtained in Para 3 above, the following should be added to output tax liability:

a) credit attributable toward exempt supplies = (Aggregate value of exempt supplies / total turnover) x common credit of input tax
b) credit on non-business or other purposes = common credit of input tax x 5%

(The aggregate value of exempt supplies and “Total Turnover” shall exclude the amount of any duty or tax levied for Excise on Petroleum, Tobacco Products, liquor for human consumption, opium.)

The input tax credit as explained above, shall be computed for every month based on actual supplies or based on previous month’s supplies, if does not have any turnover during such period or information is not available. After the end of financial year, necessary adjustments should be made before the due date of filing return for the month of September following the end of financial year.

At the time of final adjustment, the credit availed for exempt supplies and supplies towards non business or for other purposes, is more than the credit computed above, such excess is added to output tax liability with the interest due thereon for the period from April 01 of the following year to the date of payment. However, if such credit availed is less than the credit computed above, such short amount is claimed as credit in electronic credit ledger.

The input tax credit amount as computed above should be declared in inward supplies return for every month’s tax period separately (GSTR-2).

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *