Rule 43 - Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases under Goods and Service tax

1. Amendment in ITC reversal
rule 43
Ca Surbhi Chaudhari

2. Situations :
 Capital goods procured to effect exclusively exempt and non-business supply.
 Capital goods procured to effect exclusively taxable supply including zero-rated supply.
 Capital goods procured to effect exempt supply as well as a taxable supply.
 Capital goods procured to effect exclusively exempt supply & non-business supply now used for
providing taxable as well as exempt supply.
 Capital goods procured to effect exclusively taxable supply & zero-rated supply now used for providing
taxable as well as exempt supply.

3. Situation1 : Capital goods procured to effect exclusively
exempt and non-business supply.
ECL
ITC
• ITC shall be credited to
electronic credit ledger

4. Situation2 : Capital goods procured to effect exclusively
taxable supply including zero-rated supply.
ECL
ITC
• ITC shall be credited
to electronic credit
ledger

5. Situation3 : Capital goods procured to effect exempt
supply as well as a taxable supply.
ECL
ITC
• ITC shall be credited to an electronic credit ledger.
• ITC Will be reversed in the respect of exempt
supply in a specified manner.

6. Situation4 : Capital goods procured to effect exclusively exempt
supply & non-business supply now used for providing
taxable as well as exempt supply.
ECL
ITC
• ITC shall be credited to an electronic credit
ledger.
• Tie = ITC* 5% P.Q. Or Part thereof for a
period was used for exempt supply added
to the output tax liability of the tax
period in which such credit is claimed.
• ITC Will be reversed in the respect of
exempt supply in a specified manner.

7. Situation5 :Capital goods procured to effect exclusively taxable
supply & zero-rated supply now used for providing taxable
as well as exempt supply.
ITC
ECL
• No need, as credit was availed earlier when used for a
taxable supply.
• ITC Will be reversed in the respect of exempt supply in
a specified manner. No need as
credit was
already availed.

8. Specified manner
for reversal of ITC
• THE USEFUL LIFE OF CAPITAL GOODS IS
TAKEN TO BE FIVE YEARS FROM THE
DATE OF THE INVOICE.
• GSTR3B FILED MONTHLY MEANS
APPORTIONMENT OF ITC WILL BE MADE
EVERY MONTH.
• TOTAL COMMON CREDIT= AGGREGATE
OF ALL COMMON CREDIT (TC = ∑ A )
• TOTAL COMMON MONTHLY CREDIT =
TOTAL COMMON CREDIT /60(Tm = Tc /
60)
• ITC WILL BE REVERSED = TOTAL
COMMON CREDIT * EXEMPT SUPPLY
TOTAL TURNOVER
(Te = Tr x (E / F))

9. Example:
Product A
taxable
Product B
taxable
Product C
Exempt
A Company
manufactures three
products:
Turnover in
the month
of April 20xx
Taxable supply
: 18,00,000
Exempt supply
: 12,00,00

10. Particulars Date of Purchase Usage ITC Paid
Machinery A 01 April 20xx Exclusively used for non-business
purpose
9000
Machinery B 01 April 20xx Exclusively used in manufacturing
zero-rated supplies.
18000
Machinery C 01 April 20xx Used in the manufacturing of all
three products.
45000
Machinery D 2 years before 01
April 20xx
Purchased for being exclusively
used in manufacturing Product C,
but now also used for
manufacturing Product A and
Product B.
90000
Machinery E 3 Years before 01
April 20xx
Purchased for being exclusively
used in manufacturing Product A
and Product B, but now also
for manufacturing Product C.
120000

11. Solution:
Machinery Amount
transferred to
ECL
“Tie” added to
output tax
liabiity
Common Credit Remarks
Machinery A - - - Exclusively used
for non-business
purpose
Machinery B 18000 - - Exclusively used
in manufacturing
zero-rated
supplies.

12. Machinery Amount
transferred to ECL
Ineligible credit Common Credit Remarks
Machinery C 45000 - 45000 Used in the
manufacturing of
all three products.
Machinery D 90000 =90000*5%*2*4
=36000
90000 Capital goods
procured to effect
exclusively exempt
supply & non-
business
supply now used
for providing
taxable as well as
exempt supply.

13. Machinery Amount
transferred to
ECL
Ineligible credit Common Credit Remarks
Machinery E - - 120000 No need, as
credit was
availed earlier
when used for a
taxable supply.
TOTAL 72000 36000 255000
COMMON MONTHLY CREDIT = 255000/60
=4250
COMMON MONTHLY CREDIT ATTRIBUTABLE TO EXEMPT SUPPLY = 4250*1200000
3000000
= 1700
AMOUNT ADDED TO OUTPUT TAX LIABILITY AS PER RULE 43 = 1700

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