One of the much talked about features of the Goods and Services Tax Law (GST) is seamless input tax credit. A registered person is eligible to take input tax credit charged on any supply of goods or services or both which are used or intended to be used in the course or furtherance of his business. In many cases, businesses use the same assets and inputs for both business & personal use. The total input tax credit available on purchases of all such purchases is called common credit under GST. Also ITC cannot be claimed for inputs used in making exempted goods. Since, a registered person can claim input tax credit on inputs for the business purposes and taxable supplies, common credit is to be proportionally utilised.
Eg: An Electronics Shop owner purchased 10 TV sets to sell them. He took one of the TV sets to home for personal use. ITC cannot be claimed by him on the TV set used at home.
Calculation Common Credit
Rule 42 of the CGST Rules provides the methodology for apportionment of ITC on inputs and input services and reversal of ineligible credit as follows:
Step 1: Calculate total eligible ITC
Available credit C1 = Total ITC - [ITC for personal supplies + ITC for exempted supplies + Non-eligible ITC]
= T- (T1 +T2 +T3 )
This will give the amount of total available credit, i.e., the total eligible credit by removing ITC on all personal inputs, all exempted inputs, non-eligible ITC. This amount will be credited to electronic ledger. ITC for personal supplies, exempt supplies & non-eligible supplies is required to be reversed.
Step 2: Calculate ITC related to personal supplies & exempt supplies
Common Credit C2 = Input Tax credited to Electronic Credit Ledger (C1) - Input Tax for taxable supplies (T4 )
This amount is the common credit which has to be shared between taxable supplies, personal supplies and exempt supplies.
Proportioning of common credit
The portion of ITC related to exempted supplies is calculated as follows:
D1= (Exempted Turnover/ Total Turnover) X Common Credit
D1 will be the amount of ITC related to exempted supplies which must be reversed.
There can be common inputs or inputs services which are incurred for both business & personal purposes. Below mentioned formula will help to segregate the amount of credit that is related to personal purposes.
D2 = 5% of Common Credit
The formula calculates the amount by assuming 5% of inputs are used for personal purposes.
Now, we calculate the portion of common credit that pertains to the taxable supplies
C3 = Common Credit - [ITC portion for exempted supplies (D1) + ITC portion for personal supplies (D2)]
This amount is the common credit related to normal supplies.
Step 3: Calculate total claimable ITC
Total eligible ITC = ITC for normal supplies + Common credit for normal supplies
In this way the common credit amount is calculated. Both D1 and D2 amounts must be reversed.