Input Tax Credit: formula sheet

Key formulas

Basic entitlement (section 16(1))

ITC allowed = tax on supplies to a registered person, used or intended to be used in the course or furtherance of business

Subject to prescribed conditions and credited to the electronic credit ledger.

Conditions in section 16(2)

(a) tax invoice or debit note + (aa) supplier has furnished it in outward supplies statement + (b) goods/services received + (ba) credit not restricted + (c) tax paid to Government + (d) return under section 39 filed

All must be met. Failing one means no credit for that supply.

Lots or instalments

Credit is taken on receipt of the last lot or instalment

First proviso to section 16(2). Applies where goods against one invoice arrive in parts.

180-day payment rule

If supplier not paid within 180 days from invoice date: credit availed must be paid back with interest under section 50

Does not apply to supplies on reverse charge. Credit can be availed again on payment to the supplier.

Time limit (section 16(4))

Last date = 30 November following the end of the financial year of the invoice/debit note, or date of furnishing the annual return, whichever is earlier

Example: for an invoice of FY 2026-27, the outer date is 30 November 2027.

Depreciation on tax (section 16(3))

If depreciation is claimed on the tax component of capital goods under the Income-tax Act, 1961, ITC on that tax component is not allowed

Text of the Act refers to the 1961 Act. You may either take ITC or depreciation on the tax part, not both.

Business purpose rule, section 17(1)

Eligible ITC = input tax attributable to business purposes

Credit on the part used for personal or other non-business purposes is not allowed.

Exempt supply rule, section 17(2)

Eligible ITC = input tax attributable to taxable supplies (including zero-rated supplies)

Where inputs are used for both taxable and exempt supplies. The exact attribution method is as prescribed in the rules.

Common credit working (exam approach)

Eligible common credit = Common ITC × (Turnover of taxable and zero-rated supplies ÷ Total turnover)

Total turnover includes exempt supplies. Use this proportion only when the question or rules give no better attribution. Credit directly attributable to taxable supplies is fully allowed and to exempt supplies fully denied.

Banks and NBFCs option, section 17(4)

Credit allowed = 50% of eligible ITC each month; rest lapses

Option once exercised cannot be withdrawn during the rest of the financial year. The 50% limit does not apply to tax on supplies between registered persons having the same PAN.

Blocked items, section 17(5)

No ITC on: motor vehicles (up to 13 persons) and vessels/aircraft, with exceptions; related insurance, servicing and repairs; food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing/renting/hiring of such vehicles, life and health insurance; club and fitness membership; employee vacation travel benefits; works contract and goods or services for construction of immovable property (other than plant and machinery); tax paid under composition (section 10); non-resident taxable person's inputs (except imported goods); CSR activities; personal consumption; goods lost, stolen, destroyed, written off, gifted or free samples; tax paid under section 74 for periods up to FY 2023-24

Each item has exceptions. Learn the exception with the item.

Utilisation of IGST credit

IGST credit → first IGST output, then CGST output, then SGST/UTGST output

IGST credit must be fully used against IGST liability before it is used for CGST or SGST/UTGST.

Utilisation of CGST credit

CGST credit → first CGST output, then IGST output

CGST credit cannot be used for SGST/UTGST output.

Utilisation of SGST/UTGST credit

SGST/UTGST credit → first SGST/UTGST output, then IGST output

SGST/UTGST credit cannot be used for CGST output.

Cash payable per head

Cash payable = Output tax of the head − Credit applied to that head

Work out each head separately. Never net the three heads together.

Closing credit

Closing credit = Opening credit + Credit earned − Credit utilised

Unused credit stays in the electronic credit ledger and carries forward.

Useful life of capital goods

Useful life = 5 years = 60 months from the date of the invoice

Rule 43 uses 60 as the divisor. Part of a month counts as a full month only in the final calculation for real estate projects under sub-rule (2).

Monthly credit on common capital goods

Tm = Tc ÷ 60

Tc is the total of 'A' (ITC on the invoice) for common capital goods whose useful life is still running in the tax period. Tm is the credit attributable to that tax period.

Credit attributable to exempt supplies

Te = (E ÷ F) × Tr

E is the value of exempt supplies in the tax period. F is the total turnover in the State in that period. Clause (f) of Rule 43 is omitted, so in numericals use the monthly credit Tm as the credit to be apportioned.

Treatment of Te

Te + applicable interest is added to output tax liability in every tax period of the useful life

Compute Te separately for CGST, SGST/UTGST and IGST. Declare it in GSTR-3B.

No turnover in the period

Use E and F of the last tax period for which turnover details are available

This applies where there is no turnover or the information is not available.

180-day reversal (proportionate)

ITC to reverse = Total ITC on invoice × (Unpaid amount ÷ Invoice value including tax)

Add the amount to output tax with interest. It can be claimed again on payment to the supplier. It does not apply to reverse charge supplies.

Capital goods when registration status changes

Reversal = higher of (a) ITC on the remaining life, reduced by 5 percentage points per quarter or part, and (b) tax on the transaction value

Applies when you move to composition or your supplies become wholly exempt.

Capital goods moving from exclusive-exempt use to common use

Ineligible credit Tie = 5 percentage points for every quarter or part, for the period the goods were exclusive-exempt, added to output tax liability

Applies when goods earlier covered by clause (a) later fall under clause (c). Compute Tie separately for each tax.

Distribution formula (Rule 39(1)(f))

C1 = (t1 ÷ T) × C

C = credit to distribute; t1 = turnover of recipient R1 in the relevant period; T = total turnover of all recipients to whom the service is attributable. For credit attributable to all recipients, T covers all recipients operational in the current year.

Timing and cap

Credit available in a month is distributed in the same month; distributed credit ≤ credit available

Details are furnished in FORM GSTR-6.

Attribution rules

One recipient: only to that recipient. More than one: pro rata among them. All recipients: pro rata among all.

Pro rata is on turnover in the recipient's State or Union territory during the relevant period.

Separate distribution

Eligible and ineligible credit are distributed separately. Central, State/UT and integrated tax are distributed separately.

Ineligible credit means credit ineligible under section 17(5) or otherwise.

Type of tax distributed

IGST → IGST to every recipient. CGST + SGST/UTGST → same State: CGST and SGST/UTGST. Other State: IGST (sum of the CGST and SGST/UTGST share).

The tax type depends on where the recipient is located relative to the ISD.

Documents

ISD invoice for distribution; ISD credit note for reduction

The ISD invoice must clearly state that it is issued only for distribution of input tax credit.

Credit notes received by the ISD

Reduction apportioned in the same ratio as the original distribution

Reduce it from credit distributed in the month the credit note is included in GSTR-6. If the amount turns negative, add it to the recipient's output tax liability.

Conditions for claiming ITC (Section 16)

ITC allowed = valid document + goods/services received + tax actually paid to government by supplier + return under section 39 filed

All four must hold. Missing one means no credit, or credit held until the condition is met.

Reconciliation base

ITC claimed in GSTR-3B ≤ ITC available as per GSTR-2B (as per the conditions of the rules)

Claim should be backed by GSTR-2B. Excess over 2B is a mismatch to be explained or reversed.

Reconciliation difference

Difference = ITC as per books − ITC as per GSTR-2B

Positive means books show more credit than the portal. Investigate each invoice causing it.

Payment to supplier

Reverse ITC, with interest, on the amount not paid to the supplier (value of supply plus tax) within 180 days from the date of invoice

Second proviso to Section 16(2) and Rule 37. Reverse only the ITC proportionate to the unpaid amount. You can re-avail it once you pay the supplier.

Time limit to claim

Claim by the earlier of 30th November following the end of the financial year to which the invoice/debit note pertains, or the date of furnishing the annual return

This is the time limit under Section 16(4). The year that counts is the one to which the invoice or debit note pertains, not the year in which you claim.

Quick revision

• ITC reduces output GST by GST paid on inputs, input services and capital goods used for business.
• Check the basic conditions every time: valid document, receipt of goods or services, tax paid to government, return filed.
• Blocked credits are excluded even if the purchase looks business-related; learn the exceptions along with each block.
• Credit on common inputs used for taxable and exempt supplies is reduced; only the common portion is apportioned.
• Integrated tax credit, central tax credit and State tax credit follow a fixed set-off order; learn the table and apply it.
• Cash ledger is used only after credit is exhausted for the liability concerned.
• An ISD is an office that receives input service invoices on behalf of distinct persons and distributes the credit.
• ISD credit available in a month is distributed in the same month, and the amount distributed cannot exceed the credit available.
• Credit attributable to one recipient goes only to that recipient; credit attributable to several is shared pro rata on turnover.
• ISD distribution formula: C1 = (t1 ÷ T) × C, using turnover of the relevant period.
• Integrated tax credit is distributed as integrated tax; central and State tax credit goes as central and State tax to a same-State recipient, and as integrated tax to a recipient in another State.
• ISD issues an ISD invoice for distribution and an ISD credit note to reduce credit already distributed.

Common mistakes

• Claiming credit as soon as the invoice is received, even though the goods have not arrived. Fix: Always confirm receipt. For goods in lots, credit comes only on the last lot.
• Saying the time limit is 30 September. Fix: The Act now says 30 November following the end of the financial year, or the annual return date, whichever is earlier.
• Treating blocked credit and apportionment as the same thing. Fix: Ask whether the item is on the list in section 17(5) (blocked) or whether the use is mixed (apportionment). Blocked items are denied in full, regardless of use.
• Denying credit on food or club membership in every case. Fix: For food, outdoor catering and similar items, credit is allowed where the inward supply is used for an outward taxable supply of the same category or as an element of a taxable composite or mixed supply. Employee benefits are allowed where law obliges the employer to provide them.
• Using CGST credit to pay SGST/UTGST output tax (or the reverse). Fix: Remember that CGST and SGST/UTGST credits are never cross-utilised. Each can only pay its own tax or IGST.
• Using CGST or SGST credit against IGST output before using up IGST credit. Fix: Use IGST credit first against IGST output. Only then use CGST or SGST credit against IGST.
• Dividing the ITC on capital goods by 12 or 5 instead of 60. Fix: Rule 43 works monthly. Use 60 months, and always write Tm = Tc ÷ 60.
• Reversing the whole ITC when only part of the invoice is unpaid under the 180-day rule. Fix: Reverse ITC only on the unpaid part, in proportion to the unpaid amount over the invoice value including tax.
• Including units that do not benefit from the service in T. Fix: Read the attribution. For clause (d), T covers only the recipients to whom the service is attributable.
• Mixing eligible and ineligible credit in one calculation. Fix: Rule 39(1)(g) needs separate distribution. Compute them in two lines.

Exam tips

• Write the section number with each condition, for example section 16(2)(b) for receipt. Examiners give step marks for them.
• In case questions, list every condition and tick or cross it. Then conclude. This format earns marks even if you miss one point.
• For MCQs, watch the words earlier, last lot and reverse charge. They decide the answer.
• Remember section 16(3) and the 180-day rule as separate traps. They are easy two-mark MCQs.
• Do not mix this topic with blocked credits. Eligibility conditions come first, then check the restrictions.
• In MCQs, the trap is usually an exception. Read for words like 'passenger transport', 'same category', 'plant and machinery' and 'obligatory under law'.
• In numericals, show a table of items with columns for GST, status (blocked, eligible, common) and eligible amount. Step marks come from the classification.
• Quote 'section 17(5)' for blocked items and 'section 17(2)' for exempt-use apportionment, only where you are sure of the clause.