Ch 12 - Input Tax Credit when exempted as well as taxable supplies made | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 12 - Input  Tax Credit when exempted as wel l as taxable suppli es 
made 
 
 
 
 
 
CHAPTER 12 
 
Input Tax Credit when exempted as well as taxable  supplies  made 
 
EXECUTIVE SUMMARY 
 
?   If taxable person supplies both taxable goods or services both and exempt/non-taxable  goods or 
services or both, he can take only proportionate input tax credit attributable to taxable goods or 
services or both, as per rules. 
?   The calculation of eligible input tax credit will be made as per formula given in rule 7 of Input Tax 
Credit Rules. 
?   Such calculation will be done on monthly basis. At the end of financial year, actual calculations will 
be made and final adjustments will be made by September month, fo lowing the financial year. 
?   In case of capital goods which are common for taxable and exempt supplies, the eligible input tax 
credit will be as per formula specified in rule 8 of Input Tax Credit Rules. It will be spread over five 
financial years. 
12.1 Proportionate ITC when party used for business  or taxable  supplies 
 
Principle of Vat is that input tax credit is available only when tax is payable on his output. If some of supplies 
are taxable and some are exempt, the taxable person can take only proportionate input tax credit. 
This principle applies to input goods, input services and capital goods. These are provided in section 17 of 
CGST Act. 
 
Where the goods or services or both are used by the registered taxable person partly for the purpose of any 
business and partly for other purposes, the amount of input tax credit shall be restricted to so much of the input 
tax as is attributable to the purposes of his business - section 17(1) of CGST Act. 
Where  the goods and/or services  are used by the registered  person partly for effecting taxable  supplies 
including zero rated supplies under CGST or IGST Act and partly for effecting exempt supplies, the amount of 
credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero- 
rated supplies - section 17(2) of CGST Act. 
The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the 
proportionate input tax credit is to be taken - section 17(6) of CGST Act. 
This provision is similar to rule 6 of Cenvat Credit Rules. 
 
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be 
who ly exempt from tax under section 11 of CGST Act or under section 6 of IGST Act, and includes non- 
taxable supply- section 2(47) of CGST Act. 
"Taxable supply'' means a supply of goods or services or both which is leviable to tax under CGST Act - 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 12 - Input  Tax Credit when exempted as wel l as taxable suppli es 
made 
 
 
 
 
 
CHAPTER 12 
 
Input Tax Credit when exempted as well as taxable  supplies  made 
 
EXECUTIVE SUMMARY 
 
?   If taxable person supplies both taxable goods or services both and exempt/non-taxable  goods or 
services or both, he can take only proportionate input tax credit attributable to taxable goods or 
services or both, as per rules. 
?   The calculation of eligible input tax credit will be made as per formula given in rule 7 of Input Tax 
Credit Rules. 
?   Such calculation will be done on monthly basis. At the end of financial year, actual calculations will 
be made and final adjustments will be made by September month, fo lowing the financial year. 
?   In case of capital goods which are common for taxable and exempt supplies, the eligible input tax 
credit will be as per formula specified in rule 8 of Input Tax Credit Rules. It will be spread over five 
financial years. 
12.1 Proportionate ITC when party used for business  or taxable  supplies 
 
Principle of Vat is that input tax credit is available only when tax is payable on his output. If some of supplies 
are taxable and some are exempt, the taxable person can take only proportionate input tax credit. 
This principle applies to input goods, input services and capital goods. These are provided in section 17 of 
CGST Act. 
 
Where the goods or services or both are used by the registered taxable person partly for the purpose of any 
business and partly for other purposes, the amount of input tax credit shall be restricted to so much of the input 
tax as is attributable to the purposes of his business - section 17(1) of CGST Act. 
Where  the goods and/or services  are used by the registered  person partly for effecting taxable  supplies 
including zero rated supplies under CGST or IGST Act and partly for effecting exempt supplies, the amount of 
credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero- 
rated supplies - section 17(2) of CGST Act. 
The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the 
proportionate input tax credit is to be taken - section 17(6) of CGST Act. 
This provision is similar to rule 6 of Cenvat Credit Rules. 
 
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be 
who ly exempt from tax under section 11 of CGST Act or under section 6 of IGST Act, and includes non- 
taxable supply- section 2(47) of CGST Act. 
"Taxable supply'' means a supply of goods or services or both which is leviable to tax under CGST Act - 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
section 2(109) of CGST Act. 
 
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax under CGST 
Act or IGST Act - section 2(78) of CGST Act. 
Zero rated supply - "Zero-rated supply" means a supply of any goods or services or both in terms of section 
16 of IGST Act - section 2(23) of IGST Act. 
 
Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer 
will be zero rated supply - section 16(1) of IGST Act. 
Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply - 
section 16(2) of IGST Act. 
The registered person making zero rated supply can claim refund under either of two options - (a) supply 
goods under bond or LUT without payment of IGST and claim refund of unutilized input tax credit or (b) 
supply goods on payment of IGST and claim refund of IGST paid on goods and services. The refund will be in 
accordance with section 54 of CGST Act - section 16(3) of IGST Act. 
12.2 Special provisions in respect of Banks, FI and NBFC 
 
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 shall have the option to either comply with 
the provisions of section 17(2) of CGST Act, or avail of, every month, an amount equal to fifty per cent of the 
eligible input tax credit on inputs, capital goods and input services in that month - section 17(4) of CGST Act. 
The option once exercised shall not be withdrawn during the remaining part of the financial year - first proviso 
to section 17(4) of CGST Act. 
 
The 50% restriction shall not apply to the tax paid on supplies made by one registered person to another 
registered person having same PAN number - second proviso to section 17(4) of CGST Act. 
This provision applies when Bank/FI/NBFC  in one State provides services (or supplies goods) to its own 
branch in another State. 
In most of the cases, Bank, FI or NBFC may find it easy and profitable to avail 50% of input tax credit 
instead of availing input tax credit on proportionate basis as per section 17(2) of CGST Act. 
12.2-1 Procedure to claim of credit by a banking company or a financial institution 
 
A banking company or a financial institution, including a non-banking financial company, engaged in supply of 
services by way of accepting deposits or extending loans or advances that chooses not to comply with the 
provisions of section 17(2), in accordance with the option permitted under section 17(4) of CGST Act, shall 
fo low the procedure specified below — 
 
(a)   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 and the credit attributable to supplies specified in section 17(5), 
in form GSTR-2. 
(b)   the said company or institution shall avail the credit of tax paid on inputs and input services referred 
to in the second proviso to section 16(4) and not covered under clause (a). 
(c)   fifty per cent of the remaining input tax shall be the input tax credit admissible to the company or the 
institution and shall be furnished in form GSTR-2. 
(d)   the amount referred to in clauses (b) and (c) sha l, subject to the provisions of sections 41, 42 and 
43, be credited to the electronic credit ledger of the said company or the institution - rule 3 of Input 
Tax Credit Rules. 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 12 - Input  Tax Credit when exempted as wel l as taxable suppli es 
made 
 
 
 
 
 
CHAPTER 12 
 
Input Tax Credit when exempted as well as taxable  supplies  made 
 
EXECUTIVE SUMMARY 
 
?   If taxable person supplies both taxable goods or services both and exempt/non-taxable  goods or 
services or both, he can take only proportionate input tax credit attributable to taxable goods or 
services or both, as per rules. 
?   The calculation of eligible input tax credit will be made as per formula given in rule 7 of Input Tax 
Credit Rules. 
?   Such calculation will be done on monthly basis. At the end of financial year, actual calculations will 
be made and final adjustments will be made by September month, fo lowing the financial year. 
?   In case of capital goods which are common for taxable and exempt supplies, the eligible input tax 
credit will be as per formula specified in rule 8 of Input Tax Credit Rules. It will be spread over five 
financial years. 
12.1 Proportionate ITC when party used for business  or taxable  supplies 
 
Principle of Vat is that input tax credit is available only when tax is payable on his output. If some of supplies 
are taxable and some are exempt, the taxable person can take only proportionate input tax credit. 
This principle applies to input goods, input services and capital goods. These are provided in section 17 of 
CGST Act. 
 
Where the goods or services or both are used by the registered taxable person partly for the purpose of any 
business and partly for other purposes, the amount of input tax credit shall be restricted to so much of the input 
tax as is attributable to the purposes of his business - section 17(1) of CGST Act. 
Where  the goods and/or services  are used by the registered  person partly for effecting taxable  supplies 
including zero rated supplies under CGST or IGST Act and partly for effecting exempt supplies, the amount of 
credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero- 
rated supplies - section 17(2) of CGST Act. 
The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the 
proportionate input tax credit is to be taken - section 17(6) of CGST Act. 
This provision is similar to rule 6 of Cenvat Credit Rules. 
 
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be 
who ly exempt from tax under section 11 of CGST Act or under section 6 of IGST Act, and includes non- 
taxable supply- section 2(47) of CGST Act. 
"Taxable supply'' means a supply of goods or services or both which is leviable to tax under CGST Act - 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
section 2(109) of CGST Act. 
 
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax under CGST 
Act or IGST Act - section 2(78) of CGST Act. 
Zero rated supply - "Zero-rated supply" means a supply of any goods or services or both in terms of section 
16 of IGST Act - section 2(23) of IGST Act. 
 
Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer 
will be zero rated supply - section 16(1) of IGST Act. 
Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply - 
section 16(2) of IGST Act. 
The registered person making zero rated supply can claim refund under either of two options - (a) supply 
goods under bond or LUT without payment of IGST and claim refund of unutilized input tax credit or (b) 
supply goods on payment of IGST and claim refund of IGST paid on goods and services. The refund will be in 
accordance with section 54 of CGST Act - section 16(3) of IGST Act. 
12.2 Special provisions in respect of Banks, FI and NBFC 
 
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 shall have the option to either comply with 
the provisions of section 17(2) of CGST Act, or avail of, every month, an amount equal to fifty per cent of the 
eligible input tax credit on inputs, capital goods and input services in that month - section 17(4) of CGST Act. 
The option once exercised shall not be withdrawn during the remaining part of the financial year - first proviso 
to section 17(4) of CGST Act. 
 
The 50% restriction shall not apply to the tax paid on supplies made by one registered person to another 
registered person having same PAN number - second proviso to section 17(4) of CGST Act. 
This provision applies when Bank/FI/NBFC  in one State provides services (or supplies goods) to its own 
branch in another State. 
In most of the cases, Bank, FI or NBFC may find it easy and profitable to avail 50% of input tax credit 
instead of availing input tax credit on proportionate basis as per section 17(2) of CGST Act. 
12.2-1 Procedure to claim of credit by a banking company or a financial institution 
 
A banking company or a financial institution, including a non-banking financial company, engaged in supply of 
services by way of accepting deposits or extending loans or advances that chooses not to comply with the 
provisions of section 17(2), in accordance with the option permitted under section 17(4) of CGST Act, shall 
fo low the procedure specified below — 
 
(a)   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 and the credit attributable to supplies specified in section 17(5), 
in form GSTR-2. 
(b)   the said company or institution shall avail the credit of tax paid on inputs and input services referred 
to in the second proviso to section 16(4) and not covered under clause (a). 
(c)   fifty per cent of the remaining input tax shall be the input tax credit admissible to the company or the 
institution and shall be furnished in form GSTR-2. 
(d)   the amount referred to in clauses (b) and (c) sha l, subject to the provisions of sections 41, 42 and 
43, be credited to the electronic credit ledger of the said company or the institution - rule 3 of Input 
Tax Credit Rules. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
12.3 Determination of input  tax  credit when partly used for taxable  supply  and  partly for exempt 
supply 
The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) or 
17(2), being partly used for the purposes of business and partly for other purposes, or partly used for effecting 
taxable supplies including zero rated supplies and partly for effecting exempted supplies, shall be attributed to 
the purposes of business or for effecting taxable supplies in the fo lowing manner, namely, - 
 
(a)   total input tax i nvolved on inputs and input services in a tax period, be denoted as 'T'. 
(b)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for purposes other than business, be denoted as 'T1'. 
(c)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for effecting exempt supplies, be denoted as 'T2'. 
(d)   the amount of input tax, out of 'T', in respect of inputs on which credit is not available under sub- 
section (5) of section 17, be denoted as 'T3'. 
(e)   the amount of input tax credit credited  to the electronic  credit ledger of registered  person,  be 
denoted as 'C1' and calculated as: 
C1 = T- (T1+T2+T3). 
(f)  the amount of input tax credit attributable  to inputs and input services used exclusively in or in 
relation to taxable supplies including zero rated supplies, be denoted as 'T4'. 
(g)   'T1', 'T2', 'T3' and 'T4' shall be determined and declared by the registered person at the invoice level 
in form GSTR-2. 
(h)   Input tax credit left after attribution of input tax credit under clause (g) shall be ca led common credit, 
be denoted as 'C2' and calculated as: 
C2 = C1- T4. 
(i)   The  amount  of input  tax credit  attributable  towards  exempt  supplies,  be  denoted  as 'D1'  and 
calculated as: 
D1= (E÷F) × C2 
where, 
'E' is the aggregate value of exempt supplies, that is, a l supplies other than taxable and zero rated 
supplies, during the tax period, and 'F' is the total turnover of the registered person during the tax 
period: 
Where the registered person does not have any turnover during the said tax period or the aforesaid 
information is not available, the value of 'E/F' shall calculated by taking values of 'E' and 'F' of the last 
tax period for which details of such turnover are available, previous to the month during which the 
said value of 'E/F' is to calculated - proviso to rule 7 of Input Tax Credit Rules. 
Explanation:  For the purposes of this clause, the aggregate  value of exempt supplies and total 
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh 
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule. 
(j)   the amount of credit attributable to non-business purposes if common inputs and input services are 
used partly for business and partly for non-business purposes, be denoted as 'D2', and shall be equal 
to five per cent of C2', and 
(k)  the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 12 - Input  Tax Credit when exempted as wel l as taxable suppli es 
made 
 
 
 
 
 
CHAPTER 12 
 
Input Tax Credit when exempted as well as taxable  supplies  made 
 
EXECUTIVE SUMMARY 
 
?   If taxable person supplies both taxable goods or services both and exempt/non-taxable  goods or 
services or both, he can take only proportionate input tax credit attributable to taxable goods or 
services or both, as per rules. 
?   The calculation of eligible input tax credit will be made as per formula given in rule 7 of Input Tax 
Credit Rules. 
?   Such calculation will be done on monthly basis. At the end of financial year, actual calculations will 
be made and final adjustments will be made by September month, fo lowing the financial year. 
?   In case of capital goods which are common for taxable and exempt supplies, the eligible input tax 
credit will be as per formula specified in rule 8 of Input Tax Credit Rules. It will be spread over five 
financial years. 
12.1 Proportionate ITC when party used for business  or taxable  supplies 
 
Principle of Vat is that input tax credit is available only when tax is payable on his output. If some of supplies 
are taxable and some are exempt, the taxable person can take only proportionate input tax credit. 
This principle applies to input goods, input services and capital goods. These are provided in section 17 of 
CGST Act. 
 
Where the goods or services or both are used by the registered taxable person partly for the purpose of any 
business and partly for other purposes, the amount of input tax credit shall be restricted to so much of the input 
tax as is attributable to the purposes of his business - section 17(1) of CGST Act. 
Where  the goods and/or services  are used by the registered  person partly for effecting taxable  supplies 
including zero rated supplies under CGST or IGST Act and partly for effecting exempt supplies, the amount of 
credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero- 
rated supplies - section 17(2) of CGST Act. 
The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the 
proportionate input tax credit is to be taken - section 17(6) of CGST Act. 
This provision is similar to rule 6 of Cenvat Credit Rules. 
 
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be 
who ly exempt from tax under section 11 of CGST Act or under section 6 of IGST Act, and includes non- 
taxable supply- section 2(47) of CGST Act. 
"Taxable supply'' means a supply of goods or services or both which is leviable to tax under CGST Act - 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
section 2(109) of CGST Act. 
 
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax under CGST 
Act or IGST Act - section 2(78) of CGST Act. 
Zero rated supply - "Zero-rated supply" means a supply of any goods or services or both in terms of section 
16 of IGST Act - section 2(23) of IGST Act. 
 
Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer 
will be zero rated supply - section 16(1) of IGST Act. 
Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply - 
section 16(2) of IGST Act. 
The registered person making zero rated supply can claim refund under either of two options - (a) supply 
goods under bond or LUT without payment of IGST and claim refund of unutilized input tax credit or (b) 
supply goods on payment of IGST and claim refund of IGST paid on goods and services. The refund will be in 
accordance with section 54 of CGST Act - section 16(3) of IGST Act. 
12.2 Special provisions in respect of Banks, FI and NBFC 
 
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 shall have the option to either comply with 
the provisions of section 17(2) of CGST Act, or avail of, every month, an amount equal to fifty per cent of the 
eligible input tax credit on inputs, capital goods and input services in that month - section 17(4) of CGST Act. 
The option once exercised shall not be withdrawn during the remaining part of the financial year - first proviso 
to section 17(4) of CGST Act. 
 
The 50% restriction shall not apply to the tax paid on supplies made by one registered person to another 
registered person having same PAN number - second proviso to section 17(4) of CGST Act. 
This provision applies when Bank/FI/NBFC  in one State provides services (or supplies goods) to its own 
branch in another State. 
In most of the cases, Bank, FI or NBFC may find it easy and profitable to avail 50% of input tax credit 
instead of availing input tax credit on proportionate basis as per section 17(2) of CGST Act. 
12.2-1 Procedure to claim of credit by a banking company or a financial institution 
 
A banking company or a financial institution, including a non-banking financial company, engaged in supply of 
services by way of accepting deposits or extending loans or advances that chooses not to comply with the 
provisions of section 17(2), in accordance with the option permitted under section 17(4) of CGST Act, shall 
fo low the procedure specified below — 
 
(a)   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 and the credit attributable to supplies specified in section 17(5), 
in form GSTR-2. 
(b)   the said company or institution shall avail the credit of tax paid on inputs and input services referred 
to in the second proviso to section 16(4) and not covered under clause (a). 
(c)   fifty per cent of the remaining input tax shall be the input tax credit admissible to the company or the 
institution and shall be furnished in form GSTR-2. 
(d)   the amount referred to in clauses (b) and (c) sha l, subject to the provisions of sections 41, 42 and 
43, be credited to the electronic credit ledger of the said company or the institution - rule 3 of Input 
Tax Credit Rules. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
12.3 Determination of input  tax  credit when partly used for taxable  supply  and  partly for exempt 
supply 
The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) or 
17(2), being partly used for the purposes of business and partly for other purposes, or partly used for effecting 
taxable supplies including zero rated supplies and partly for effecting exempted supplies, shall be attributed to 
the purposes of business or for effecting taxable supplies in the fo lowing manner, namely, - 
 
(a)   total input tax i nvolved on inputs and input services in a tax period, be denoted as 'T'. 
(b)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for purposes other than business, be denoted as 'T1'. 
(c)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for effecting exempt supplies, be denoted as 'T2'. 
(d)   the amount of input tax, out of 'T', in respect of inputs on which credit is not available under sub- 
section (5) of section 17, be denoted as 'T3'. 
(e)   the amount of input tax credit credited  to the electronic  credit ledger of registered  person,  be 
denoted as 'C1' and calculated as: 
C1 = T- (T1+T2+T3). 
(f)  the amount of input tax credit attributable  to inputs and input services used exclusively in or in 
relation to taxable supplies including zero rated supplies, be denoted as 'T4'. 
(g)   'T1', 'T2', 'T3' and 'T4' shall be determined and declared by the registered person at the invoice level 
in form GSTR-2. 
(h)   Input tax credit left after attribution of input tax credit under clause (g) shall be ca led common credit, 
be denoted as 'C2' and calculated as: 
C2 = C1- T4. 
(i)   The  amount  of input  tax credit  attributable  towards  exempt  supplies,  be  denoted  as 'D1'  and 
calculated as: 
D1= (E÷F) × C2 
where, 
'E' is the aggregate value of exempt supplies, that is, a l supplies other than taxable and zero rated 
supplies, during the tax period, and 'F' is the total turnover of the registered person during the tax 
period: 
Where the registered person does not have any turnover during the said tax period or the aforesaid 
information is not available, the value of 'E/F' shall calculated by taking values of 'E' and 'F' of the last 
tax period for which details of such turnover are available, previous to the month during which the 
said value of 'E/F' is to calculated - proviso to rule 7 of Input Tax Credit Rules. 
Explanation:  For the purposes of this clause, the aggregate  value of exempt supplies and total 
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh 
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule. 
(j)   the amount of credit attributable to non-business purposes if common inputs and input services are 
used partly for business and partly for non-business purposes, be denoted as 'D2', and shall be equal 
to five per cent of C2', and 
(k)  the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
business and for effecting taxable supplies including zero rated supplies and shall be denoted as 'C3', 
where,- 
C3 = C2 - (D1+D2). 
(l)   The amount 'C3' shall be computed separately for input tax credit of central tax, State tax, Union 
territory tax and integrated tax. 
(m)  The amount equal to 'D1' and 'D2' shall be added to the output tax liability of the registered person: 
If the amount of input tax relating to inputs or input services  which have been used  partly for 
purposes  other  than business  and  partly for  effecting  exempt  supplies  has  been identified  and 
segregated  at invoice level by the registered person, the same shall be included in 'T1' and 'T2' 
respectively, and the remaining amount of credit on such input or input services shall be included in 
'T4'. - rule 7(1) of Input Tax Credit Rules. 
Final calculations at end of financial year 
The input tax credit determined under rule 7(1) shall be calculated finally for the financial year before the due 
date for f iling the return for the month of September fo lowing the end of the financial year to which such credit 
relates, in the manner prescribed in the said sub-rule and, 
 
(a)   where  the aggregate  of the amounts  calculated  finally in respect  of 'D1'  and  'D2'  exceeds  the 
aggregate of the amounts determined under sub-rule (1) in respect of 'D1' and 'D2', such excess 
shall be added to the output tax liability of the registered person for a month not later than the month 
of September fo lowing the end of the financial year to which such credit relates and the said person 
shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of 
section 50 for the period starting from first day of April of the succeeding financial year ti l the date of 
payment, or 
(b)   where the aggregate  of the amounts determined  under sub-rule  (1) in respect of 'D1' and 'D2' 
exceeds the aggregate of the amounts calculated finally in respect of 'D1' and 'D2', such excess 
amount shall be claimed as credit by the registered person in his return for a month not later than the 
month of September fo lowing the end of the financial year to which such credit relates - rule 7(2) of 
Input Tax Credit Rules. 
12.4 Determination of input  tax credit in respect of capital  goods used partly for taxable  supply  and 
partly for exempt supply 
Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, 
which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of 
business  and partly for other purposes,  or partly used for effecting taxable  supplies  including zero rated 
supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting 
taxable supplies in the fo lowing manner - rule 8(1) of Input Tax Credit Rules. 
 
(a)   the amount of input tax in respect of capital goods used or intended to be used exclusively for non- 
business purposes or used or intended to be used exclusively for effecting exempt supplies shall be 
indicated in form GSTR-2 and shall not be credited to his electronic credit ledger. 
(b)   the amount of input tax in respect of capital goods used or intended to be used exclusively for 
effecting taxable supplies including zero-rated supplies shall be indicated in form GSTR-2 and shall 
be credited to the electronic credit ledger. 
(c)   the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as 
'A', shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 12 - Input  Tax Credit when exempted as wel l as taxable suppli es 
made 
 
 
 
 
 
CHAPTER 12 
 
Input Tax Credit when exempted as well as taxable  supplies  made 
 
EXECUTIVE SUMMARY 
 
?   If taxable person supplies both taxable goods or services both and exempt/non-taxable  goods or 
services or both, he can take only proportionate input tax credit attributable to taxable goods or 
services or both, as per rules. 
?   The calculation of eligible input tax credit will be made as per formula given in rule 7 of Input Tax 
Credit Rules. 
?   Such calculation will be done on monthly basis. At the end of financial year, actual calculations will 
be made and final adjustments will be made by September month, fo lowing the financial year. 
?   In case of capital goods which are common for taxable and exempt supplies, the eligible input tax 
credit will be as per formula specified in rule 8 of Input Tax Credit Rules. It will be spread over five 
financial years. 
12.1 Proportionate ITC when party used for business  or taxable  supplies 
 
Principle of Vat is that input tax credit is available only when tax is payable on his output. If some of supplies 
are taxable and some are exempt, the taxable person can take only proportionate input tax credit. 
This principle applies to input goods, input services and capital goods. These are provided in section 17 of 
CGST Act. 
 
Where the goods or services or both are used by the registered taxable person partly for the purpose of any 
business and partly for other purposes, the amount of input tax credit shall be restricted to so much of the input 
tax as is attributable to the purposes of his business - section 17(1) of CGST Act. 
Where  the goods and/or services  are used by the registered  person partly for effecting taxable  supplies 
including zero rated supplies under CGST or IGST Act and partly for effecting exempt supplies, the amount of 
credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero- 
rated supplies - section 17(2) of CGST Act. 
The Central or a State Government may, by notification issued in this behalf, prescribe the manner in which the 
proportionate input tax credit is to be taken - section 17(6) of CGST Act. 
This provision is similar to rule 6 of Cenvat Credit Rules. 
 
"Exempt supply" means supply of any goods or services or both which attracts nil rate of tax or which may be 
who ly exempt from tax under section 11 of CGST Act or under section 6 of IGST Act, and includes non- 
taxable supply- section 2(47) of CGST Act. 
"Taxable supply'' means a supply of goods or services or both which is leviable to tax under CGST Act - 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
section 2(109) of CGST Act. 
 
'Non-taxable supply' means a supply of goods or services or both which is not leviable to tax under CGST 
Act or IGST Act - section 2(78) of CGST Act. 
Zero rated supply - "Zero-rated supply" means a supply of any goods or services or both in terms of section 
16 of IGST Act - section 2(23) of IGST Act. 
 
Export of goods or services or both and supplies of goods or services or both to SEZ unit or SEZ developer 
will be zero rated supply - section 16(1) of IGST Act. 
Credit of input tax may be availed for making zero-rated supplies, even if such supply is exempted supply - 
section 16(2) of IGST Act. 
The registered person making zero rated supply can claim refund under either of two options - (a) supply 
goods under bond or LUT without payment of IGST and claim refund of unutilized input tax credit or (b) 
supply goods on payment of IGST and claim refund of IGST paid on goods and services. The refund will be in 
accordance with section 54 of CGST Act - section 16(3) of IGST Act. 
12.2 Special provisions in respect of Banks, FI and NBFC 
 
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 shall have the option to either comply with 
the provisions of section 17(2) of CGST Act, or avail of, every month, an amount equal to fifty per cent of the 
eligible input tax credit on inputs, capital goods and input services in that month - section 17(4) of CGST Act. 
The option once exercised shall not be withdrawn during the remaining part of the financial year - first proviso 
to section 17(4) of CGST Act. 
 
The 50% restriction shall not apply to the tax paid on supplies made by one registered person to another 
registered person having same PAN number - second proviso to section 17(4) of CGST Act. 
This provision applies when Bank/FI/NBFC  in one State provides services (or supplies goods) to its own 
branch in another State. 
In most of the cases, Bank, FI or NBFC may find it easy and profitable to avail 50% of input tax credit 
instead of availing input tax credit on proportionate basis as per section 17(2) of CGST Act. 
12.2-1 Procedure to claim of credit by a banking company or a financial institution 
 
A banking company or a financial institution, including a non-banking financial company, engaged in supply of 
services by way of accepting deposits or extending loans or advances that chooses not to comply with the 
provisions of section 17(2), in accordance with the option permitted under section 17(4) of CGST Act, shall 
fo low the procedure specified below — 
 
(a)   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 and the credit attributable to supplies specified in section 17(5), 
in form GSTR-2. 
(b)   the said company or institution shall avail the credit of tax paid on inputs and input services referred 
to in the second proviso to section 16(4) and not covered under clause (a). 
(c)   fifty per cent of the remaining input tax shall be the input tax credit admissible to the company or the 
institution and shall be furnished in form GSTR-2. 
(d)   the amount referred to in clauses (b) and (c) sha l, subject to the provisions of sections 41, 42 and 
43, be credited to the electronic credit ledger of the said company or the institution - rule 3 of Input 
Tax Credit Rules. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
12.3 Determination of input  tax  credit when partly used for taxable  supply  and  partly for exempt 
supply 
The input tax credit in respect of inputs or input services, which attract the provisions of section 17(1) or 
17(2), being partly used for the purposes of business and partly for other purposes, or partly used for effecting 
taxable supplies including zero rated supplies and partly for effecting exempted supplies, shall be attributed to 
the purposes of business or for effecting taxable supplies in the fo lowing manner, namely, - 
 
(a)   total input tax i nvolved on inputs and input services in a tax period, be denoted as 'T'. 
(b)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for purposes other than business, be denoted as 'T1'. 
(c)   the amount of input tax, out of 'T', attributable to inputs and input services intended to be used 
exclusively for effecting exempt supplies, be denoted as 'T2'. 
(d)   the amount of input tax, out of 'T', in respect of inputs on which credit is not available under sub- 
section (5) of section 17, be denoted as 'T3'. 
(e)   the amount of input tax credit credited  to the electronic  credit ledger of registered  person,  be 
denoted as 'C1' and calculated as: 
C1 = T- (T1+T2+T3). 
(f)  the amount of input tax credit attributable  to inputs and input services used exclusively in or in 
relation to taxable supplies including zero rated supplies, be denoted as 'T4'. 
(g)   'T1', 'T2', 'T3' and 'T4' shall be determined and declared by the registered person at the invoice level 
in form GSTR-2. 
(h)   Input tax credit left after attribution of input tax credit under clause (g) shall be ca led common credit, 
be denoted as 'C2' and calculated as: 
C2 = C1- T4. 
(i)   The  amount  of input  tax credit  attributable  towards  exempt  supplies,  be  denoted  as 'D1'  and 
calculated as: 
D1= (E÷F) × C2 
where, 
'E' is the aggregate value of exempt supplies, that is, a l supplies other than taxable and zero rated 
supplies, during the tax period, and 'F' is the total turnover of the registered person during the tax 
period: 
Where the registered person does not have any turnover during the said tax period or the aforesaid 
information is not available, the value of 'E/F' shall calculated by taking values of 'E' and 'F' of the last 
tax period for which details of such turnover are available, previous to the month during which the 
said value of 'E/F' is to calculated - proviso to rule 7 of Input Tax Credit Rules. 
Explanation:  For the purposes of this clause, the aggregate  value of exempt supplies and total 
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh 
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule. 
(j)   the amount of credit attributable to non-business purposes if common inputs and input services are 
used partly for business and partly for non-business purposes, be denoted as 'D2', and shall be equal 
to five per cent of C2', and 
(k)  the remainder of the common credit shall be the eligible input tax credit attributed to the purposes of 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
business and for effecting taxable supplies including zero rated supplies and shall be denoted as 'C3', 
where,- 
C3 = C2 - (D1+D2). 
(l)   The amount 'C3' shall be computed separately for input tax credit of central tax, State tax, Union 
territory tax and integrated tax. 
(m)  The amount equal to 'D1' and 'D2' shall be added to the output tax liability of the registered person: 
If the amount of input tax relating to inputs or input services  which have been used  partly for 
purposes  other  than business  and  partly for  effecting  exempt  supplies  has  been identified  and 
segregated  at invoice level by the registered person, the same shall be included in 'T1' and 'T2' 
respectively, and the remaining amount of credit on such input or input services shall be included in 
'T4'. - rule 7(1) of Input Tax Credit Rules. 
Final calculations at end of financial year 
The input tax credit determined under rule 7(1) shall be calculated finally for the financial year before the due 
date for f iling the return for the month of September fo lowing the end of the financial year to which such credit 
relates, in the manner prescribed in the said sub-rule and, 
 
(a)   where  the aggregate  of the amounts  calculated  finally in respect  of 'D1'  and  'D2'  exceeds  the 
aggregate of the amounts determined under sub-rule (1) in respect of 'D1' and 'D2', such excess 
shall be added to the output tax liability of the registered person for a month not later than the month 
of September fo lowing the end of the financial year to which such credit relates and the said person 
shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of 
section 50 for the period starting from first day of April of the succeeding financial year ti l the date of 
payment, or 
(b)   where the aggregate  of the amounts determined  under sub-rule  (1) in respect of 'D1' and 'D2' 
exceeds the aggregate of the amounts calculated finally in respect of 'D1' and 'D2', such excess 
amount shall be claimed as credit by the registered person in his return for a month not later than the 
month of September fo lowing the end of the financial year to which such credit relates - rule 7(2) of 
Input Tax Credit Rules. 
12.4 Determination of input  tax credit in respect of capital  goods used partly for taxable  supply  and 
partly for exempt supply 
Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, 
which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of 
business  and partly for other purposes,  or partly used for effecting taxable  supplies  including zero rated 
supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting 
taxable supplies in the fo lowing manner - rule 8(1) of Input Tax Credit Rules. 
 
(a)   the amount of input tax in respect of capital goods used or intended to be used exclusively for non- 
business purposes or used or intended to be used exclusively for effecting exempt supplies shall be 
indicated in form GSTR-2 and shall not be credited to his electronic credit ledger. 
(b)   the amount of input tax in respect of capital goods used or intended to be used exclusively for 
effecting taxable supplies including zero-rated supplies shall be indicated in form GSTR-2 and shall 
be credited to the electronic credit ledger. 
(c)   the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as 
'A', shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
five years: 
Where any capital goods earlier covered under clause (a) is subsequently covered under this clause, 
the value of 'A' shall be arrived at by reducing the input tax at the rate of five percentage points for 
every quarter or part thereof and the amount 'A' shall be credited to the electronic credit ledger. 
(d)   the aggregate of the amounts of 'A' credited to the electronic credit ledger under clause (c), to be 
denoted as 'Tc', shall be the common credit in respect of capital goods for a tax period: 
Where any capital goods earlier covered under clause (b) is subsequently covered under this clause, 
the value of 'A' arrived at by reducing the input tax at the rate of five percentage points for every 
quarter or part thereof shall be added to the aggregate value 'Tc'. 
(e)   the amount of input tax credit attributable to a tax period on common capital goods during their 
residual life, be denoted as 'Tm' and calculated as:— 
Tm= Tc÷60 
the amount of input tax credit, at the beginning of a tax period, on a l common capital goods whose 
residual life remains during the tax period, be denoted as 'Tr' and shall be the aggregate of 'Tm' for 
a l such capital goods. 
the amount of common credit attributable  towards  exempted  supplies,  be denoted  as 'Te', and 
calculated as: 
Te= (E÷ F) × Tr 
where, 
'E' is the aggregate value of exempt supplies, that is, a l supplies other than taxable and zero rated 
supplies, during the tax period, and 
'F' is the total turnover of the registered person during the tax period: 
Provided that where the registered person does not have any turnover during the said tax period or 
the aforesaid information is not available, the value of 'E/F' calculated by taking values of 'E' and 'F' 
of the last tax period for which details of such turnover are available, previous to the month during 
which the said value of 'E/F' is to calculated. 
Explanation:  For the purposes of this clause, the aggregate  value of exempt supplies and total 
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh 
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule. 
(h)   the amount Te along with applicable interest sha l, during every tax period of the residual life of the 
concerned capital goods, be added to the output tax liability of the person making such claim of 
credit. 
Separate  calculations for  IGST,  CGST,  SGST  and  UTGST  -  The  amount  Te  shall be  computed 
separately for central tax, State tax, Union territory tax and integrated  tax [rule 8(2) of Input Tax Credit 
Rules].