Compute mandatory monthly Input Tax Credit (ITC) reversal on inputs and input services attributable to exempt supplies and personal use under CGST Rule 42.
Directly credited to Electronic Credit Ledger (includes zero-rated exports).
To be added to output tax liability / reversed in Table 4(B)(1) of GSTR-3B.
Under Section 17(1) and 17(2) of the CGST Act 2017 read with Rule 42 of CGST Rules, when goods or services are used partly for business and partly for other purposes, or partly for taxable supplies (including zero-rated) and partly for exempt supplies, the amount of credit must be attributed proportionally.
Rule 42 calculations must be calculated monthly and reconciled annually for the entire financial year before the due date of filing GSTR-3B for September / November following the end of the financial year. Any excess ITC claimed must be paid back with 18% interest under Section 50.
| Variable | Description | GSTR-3B Reporting Location |
|---|---|---|
| T | Total Input Tax Credit on inputs and input services | Table 4(A) |
| T1, T2, T3 | Ineligible ITC (Personal, Exempt, Blocked Sec 17(5)) | Ineligible / Not Taken |
| T4 | ITC exclusively used for taxable and export supplies | Table 4(A)(5) |
| D1 & D2 | Monthly Reversal attributable to exempt & non-business | Table 4(B)(1) [Rule 42] |
No. Rule 42 applies exclusively to inputs and input services. ITC reversal on capital goods (plant, machinery, office equipment) is governed separately under Rule 43 based on a 60-month useful life methodology.
No. As per Section 16 of the IGST Act, zero-rated supplies (exports and SEZ supplies) are entitled to full ITC and are excluded from the exempt turnover (E) numerator in Rule 42 calculations.
Failure to reverse ITC attracts demand under Section 73 / 74 along with mandatory 18% annual interest under Section 50(1) and penalties up to 100% in cases of fraud or wilful misstatement.