Tax Consultant
1935 Points
Posted on 31 August 2026
Rule 42 of CGST Rules requires proportionate reversal where inputs are used for both taxable and exempt supplies. The prescribed frequency is monthly, not half-yearly.
In practice:
- Monthly: Reverse provisional ITC based on that month's exempt turnover to total turnover ratio (D1 and D2 values in GSTR-3B Table 4)
- Year-end: Compute the actual annual D2 value using full-year figures, compare with sum of monthly reversals, and pay interest if reversal was short or reclaim if it was excess. This final adjustment must be done by September 30 of the following year.
Half-yearly reversal is not prescribed under Rule 42 and has no CBIC notification permitting it. Doing a half-yearly reversal exposes the taxpayer to interest for the months where reversal was short, as the monthly obligation applies from the date of availing the credit.
This [GSTR-1 reconciliation guide](https://taxgarden.in/blog/gstr1-reconciliation-step-by-step-2026) covers ITC apportionment, Rule 42 working, and how to handle the annual reconciliation adjustment.