Input Tax Credit and Computation of GST Liability: formula sheet

Key formulas

Basic entitlement

Registered person + supply used or intended to be used in course or furtherance of business = ITC entitlement (Section 16(1))

Subject to prescribed conditions and restrictions. Credit goes to the electronic credit ledger.

Conditions under Section 16(2)

Invoice/debit note (a) + supplier's reporting and communication (aa) + receipt (b) + credit not restricted under Section 38 (ba) + tax paid to Government (c) + return filed (d)

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

Receipt in lots

Credit allowed on receipt of the last lot or instalment

Applies where goods against one invoice come in lots or instalments.

180-day payment rule

Payment to supplier not made within 180 days from date of invoice = amount equal to ITC availed must be paid with interest under Section 50

Not applicable to supplies on which tax is payable on reverse charge. Credit can be availed again on payment to the supplier.

Depreciation bar

Depreciation claimed on tax component of capital goods under the Income-tax Act, 1961 = no ITC on that tax component (Section 16(3))

Read exactly as in the text: the Act refers to the Income-tax Act, 1961.

Time limit

No ITC after 30 November following the end of the financial year of the invoice or debit note, or filing of the annual return, whichever is earlier (Section 16(4))

Check the date of the invoice, not the date of receipt.

Section 41 reversal

Supplier has not paid tax = recipient reverses ITC with applicable interest; may re-avail when supplier pays

Reversal is in the manner prescribed.

Business use restriction

Credit allowed = Input tax attributable to business purposes

Section 17(1). Credit on personal or non-business use is not allowed.

Exempt and taxable split

Credit allowed = Input tax attributable to taxable supplies (including zero-rated)

Section 17(2). Common credit is apportioned using the prescribed rules.

Bank or NBFC option

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

Section 17(4). Alternative to Section 17(2). Cannot be withdrawn in that financial year. Not applied to supplies between registered persons with the same PAN.

Motor vehicles (clause a)

Blocked: motor vehicles for carrying persons, seating capacity not more than 13 including driver

Allowed if used for further supply of such vehicles, transporting passengers, or driving training.

Vessels and aircraft (clause aa)

Blocked unless used for further supply, passenger transport, navigation or flying training, or transport of goods

Section 17(5)(aa).

Related services (clause ab)

General insurance, servicing, repair and maintenance of blocked vehicles, vessels, aircraft are blocked

Allowed where the vehicle is used for permitted purposes, or the recipient manufactures such vehicles or supplies general insurance on them.

Clause (b) list

Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing/renting/hiring of blocked vehicles, life and health insurance; club and fitness membership; employee travel benefits such as leave or home travel concession

Exceptions: same-category outward supply or element of taxable composite or mixed supply; travel benefits where law obliges the employer.

Construction (clauses c and d)

Works contract services and goods or services for construction of immovable property (other than plant and machinery) on own account are blocked

Works contract is allowed if it is an input service for further works contract service. Construction includes reconstruction, renovation, additions, alterations or repairs to the extent of capitalisation.

Other blocked items

Section 10 (composition) tax paid; non-resident taxable person (except imports); CSR under section 135 of Companies Act, 2013; personal consumption; goods lost, stolen, destroyed, written off, gifts, free samples; tax paid under section 74 for periods up to FY 2023-24

Clauses (e), (f), (fa), (g), (h) and (i).

Plant and machinery

Apparatus, equipment and machinery fixed to earth by foundation or structural support, used for outward supply, including foundation and supports

Excludes land, building or other civil structures, telecommunication towers and pipelines outside the factory premises.

Communication under Section 38(1)

Supplier's Section 37(1) details + auto-generated ITC statement → made available electronically to recipient

Form, manner, time and conditions are as prescribed.

Content of statement, Section 38(2)

Statement = (a) inward supplies where credit may be available + (b) supplies where credit cannot be availed, wholly or partly

Clause (b) restrictions arise from the supplier's conduct as listed in sub-clauses (i) to (vi).

Condition linked to matching, Section 16(2)(aa)

Credit needs: invoice/debit note details furnished by supplier and communicated to recipient

This is the supplier-reporting condition.

Condition linked to restriction, Section 16(2)(ba)

Credit needs: ITC communicated under Section 38 has not been restricted

A restricted credit cannot be taken.

Time limit for credit, Section 16(4)

Credit not allowed after the earlier of: 30 November following the end of the financial year of the invoice, or filing of the annual return

Sub-section (5) gave special relief for 2017-18 to 2020-21.

IGST credit

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

Section 49(5)(a). The balance goes to CGST and then SGST/UTGST, in that order.

CGST credit

CGST credit → CGST first → then IGST

Section 49(5)(b). It can never be used against SGST/UTGST, as Section 49(5)(e) bars this.

SGST/UTGST credit

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

Section 49(5)(c) and (d). It can pay IGST only where the CGST credit balance is not available for IGST.

Priority of IGST credit

CGST/SGST/UTGST credit used only after IGST credit is fully used

Section 49A. It overrides Section 49.

Use of the ledgers

Credit ledger → output tax only; cash ledger → tax, interest, penalty, fee and other dues

Section 49(3) and (4). Interest, penalty, fee and other dues can be paid only from the electronic cash ledger, because Section 49(4) limits the credit ledger to output tax.

Order of discharge of dues

(a) previous periods → (b) current period → (c) other amounts, including demands under Sections 73, 74 and 74A

Section 49(8).

ISD registration

Office receiving input service invoices for distinct persons → must register as ISD (section 20(1), section 24(viii))

Applies to input services only, including reverse charge services. It does not apply to goods invoices.

Mode of distribution

Central tax → central tax or integrated tax; Integrated tax → integrated tax or central tax; by a document stating the credit amount

Time, manner and conditions are as prescribed (section 20(3)).

Share of a common credit (as prescribed in the rules)

Recipient's share = Common credit × (Recipient's turnover ÷ Total turnover of all recipients)

Credit attributable to one recipient goes only to that recipient. Use the turnover basis given in the question.

Excess distribution

Excess credit + interest recovered from recipients under section 73, 74 or 74A (section 21)

Recovery is from the recipients, not the ISD.

Stock credit on registration or leaving composition

Credit on inputs + inputs in semi-finished and finished goods held on the day before the date liable to tax (plus capital goods for leaving composition)

Section 18(1). Capital goods credit is reduced by prescribed percentage points. Reduction is 5 percentage points per quarter or part of a quarter from the invoice date.

Time limit

No credit under section 18(1) if more than one year has passed from the date of the tax invoice

Section 18(2).

Payment on opting for composition or exemption

Pay credit on stock and capital goods (reduced by prescribed percentage points); balance in ledger lapses

Section 18(4). Paid by debit to the credit or cash ledger.

Supply of capital goods on which credit was taken

Pay the higher of: (credit taken − prescribed percentage points) or (tax on transaction value under section 15)

Section 18(6).

Non-payment to supplier

Not paid within 180 days from the invoice date → reverse the credit with interest; re-avail on payment

Does not apply where tax is paid under reverse charge.

Net GST payable (basic)

Net tax = Output tax on forward charge − Eligible ITC utilised

Add reverse charge tax separately. It is payable in cash and is not reduced by ITC balance.

Total cash payment

Cash payable = Output tax − ITC utilised + Reverse charge tax + Interest + Penalty + Fee

Interest, penalty, fee and other dues are payable only from the cash ledger (Section 49(3) and (4)).

Utilisation of IGST credit - Section 49(5)(a)

IGST credit: first IGST, then CGST, then SGST/UTGST

The balance after IGST liability goes to CGST and then to State/UT tax, in that order.

Utilisation of CGST credit - Section 49(5)(b)

CGST credit: first CGST, then IGST

CGST credit can never pay SGST/UTGST (Section 49(5)(e)).

Utilisation of SGST/UTGST credit - Section 49(5)(c), (d)

SGST (or UTGST) credit: first SGST (or UTGST), then IGST

It can pay IGST only where CGST credit balance is not available for IGST. It can never pay CGST (Section 49(5)(f)).

Order of discharge of dues - Section 49(8)

(a) self-assessed tax and dues of earlier periods; (b) self-assessed tax and dues of the current period; (c) any other amount, including demand under Section 73, 74 or 74A

Within each group, the Act speaks of tax dues and other dues; interest, penalty and fee are 'other dues'.

Quick revision

• ITC reduces output tax with tax paid on inputs used for business.
• Section 17(1): credit is restricted to the part attributable to business purposes.
• Section 17(2): where inputs serve taxable (including zero-rated) and exempt supplies, credit is limited to the taxable part.
• Exempt supply value includes reverse charge supplies, securities transactions, sale of land and, subject to the Act, sale of building.
• Banks and NBFCs accepting deposits or giving loans may opt for 50% of eligible credit each month; the option cannot be withdrawn during that financial year.
• Section 17(5) blocks credit on items such as food and beverages, club membership, personal consumption, and goods lost, stolen or given as gifts or free samples.
• Credit on construction of immovable property on own account is blocked, except plant and machinery.
• Credit on goods or services used for CSR activities under section 135 of the Companies Act, 2013 is blocked.
• Section 38 makes details of outward supplies and an auto-generated statement of ITC available to the recipient.
• Credit cannot be availed on supplies from certain suppliers, such as those who have defaulted in payment of tax for the prescribed period.
• Always write the computation step by step: output tax, eligible credit, set-off, cash payable.

Common mistakes

• Claiming credit when the invoice is held but goods are not yet received. Fix: Section 16(2)(b) needs receipt as well. Remember the deemed receipt rule when goods are delivered to another person on your direction.
• Claiming credit on each lot separately when goods come in instalments against one invoice. Fix: Credit is allowed upon receipt of the last lot or instalment.
• Treating blocked credit and exempt-supply reversal as the same thing. Fix: Section 17(5) denies credit on specific items regardless of use. Section 17(1) and (2) split credit by use. Apply them separately.
• Ignoring the exceptions in Section 17(5). Fix: For every blocked item, ask whether it is used for the permitted purpose, such as passenger transport for a cab company, or for same-category outward supply.
• Saying Section 38 itself names GSTR-2A and GSTR-2B. Fix: Say the Act speaks of an auto-generated statement in prescribed form; GSTR-2A and GSTR-2B are the forms used in practice.
• Treating all invoices in the statement as eligible credit. Fix: Separate clause (a) available credit from clause (b) credit that cannot be availed, wholly or partly.
• Using CGST credit to pay SGST liability, or the reverse. Fix: Remember Section 49(5)(e) and (f). CGST and SGST/UTGST credit can never pay each other's tax. Only IGST credit can pay all three.
• Using CGST credit before the IGST credit is exhausted. Fix: Apply Section 49A. IGST credit must be used fully first, even against CGST or SGST liability.
• Saying an ISD can distribute credit on goods invoices. Fix: Write that section 20 covers invoices for input services only, including reverse charge services.
• Counting the date of registration, rather than the day before it, for stock credit. Fix: Stock is taken on the day immediately preceding the date from which you become liable, or the day before the grant for voluntary registration under section 25(3).

Exam tips

• Quote Section 16(2) with the clause letters (a), (aa), (b), (ba), (c), (d). It shows precision.
• Always give the conclusion in one clear sentence after the analysis.
• For case questions, hunt for the hidden defect: late return, unpaid supplier, undelivered goods, depreciation claim.
• Keep Section 16 (eligibility) and Section 41 (availment and reversal) separate in your answer.
• Learn the 180-day proviso with its reverse charge exception and re-availment rule.
• Write the clause number with each blocked item, for example Section 17(5)(a). Examiners reward the provision before the conclusion.
• Learn each exception along with its blocked item. Questions are often built on the exception.
• In a numerical, show direct credit, common credit and blocked credit in separate lines.