Rule 42 of CGST Act

Save Share

This query is : Resolved

hitesh (Querist)

29 December 2017 dear sir, while calculating T4 we take credit attributable to inputs and inputs service That are exclusively for affecting supplies other than exempt? where would credit for exclusive business use would be taken? If not taken at T4 it would come in common credit which is not logical.

Guest

Guest (Expert)

29 December 2017 In T4 itself credit relating to business purpose needs to be considered.

hitesh

hitesh (Querist)

29 December 2017 But in bare act they have mentioned"ITC for affecting supplies other than exempt supplies" if inputs are used for staff welfare where they would come as they are exclusively for business but not for affecting supplies other than exempt supplies?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

22 July 2025 Great question! Let me clarify Rule 42 of CGST Act and your concern about ITC (Input Tax Credit) attribution:

Background:
Rule 42 deals with the method of apportionment of credit and blocked credits when there are exempt supplies.

It requires that ITC should be taken only for inputs and input services used for making taxable supplies (i.e., supplies other than exempt supplies).

Your question:
What about ITC on inputs or services used exclusively for business purposes but not directly related to taxable supplies?

For example, expenses on staff welfare—they are purely business expenses but don't "affect" taxable supplies directly.

Should these be taken in T4 (the taxable credit section) or somewhere else?

Explanation:
T4 is for ITC attributable to taxable supplies (supplies other than exempt) only.

For inputs/input services used exclusively for exempt supplies or non-supply/business purposes (like staff welfare which is not linked to any supply), credit is not allowed as per the CGST rules.

However, if the input/input service is used exclusively for business purposes but not for making supplies (exempt or taxable)—like staff welfare—then:

The credit is blocked (i.e., no ITC allowed) under Section 17(5) of CGST Act.

Such expenses are considered non-creditable and are to be treated as expenses without ITC.

So, ITC on staff welfare expenses cannot be claimed and should not be included in T4 or common credit.

If such credits are wrongly claimed, they are liable to reversal.

Summary:
Exclusive inputs for taxable supplies → ITC claimed in T4.

Exclusive inputs for exempt supplies or non-supply (e.g. staff welfare) → No ITC allowed (blocked credit).

Such blocked credits do not appear in T4 and must be excluded.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now