Input Tax Credit and Computation of GST Liability: formula sheet

Key formulas

Basic entitlement

Registered person + business use (used or intended to be used in course or furtherance of business) = eligible to take ITC, subject to conditions

Section 16(1). Credit goes to the electronic credit ledger.

Conditions in section 16(2)

Document (a) + supplier's GSTR-1 details communicated (aa) + receipt (b) + credit not restricted (ba) + tax paid to Government (c) + return filed (d)

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

Deemed receipt

Goods delivered to a third party on the registered person's direction, or services provided to any person on his direction and account = received by him

Covers bill-to-ship-to cases. Explanation to section 16(2)(b).

Instalment supplies

Goods received in lots or instalments: credit on receipt of the last lot

First proviso to section 16(2).

180-day payment rule

Supplier not paid within 180 days from invoice date: pay back ITC availed, with interest under section 50

Not applicable to reverse charge supplies. Credit can be taken again on payment to the supplier.

Time limit

Last date = earlier of (30 November following the end of the financial year of the invoice) and (date of furnishing the annual return)

Section 16(4).

Depreciation bar

Depreciation claimed on the tax component of capital goods cost under the Income-tax Act, 1961 = no ITC on that tax component

Section 16(3).

Entitlement to credit

Registered person + eligible input tax + prescribed conditions → credit availed in return → credited to electronic credit ledger

Section 41(1). Credit is as self-assessed by you in your return.

Reversal for supplier's non-payment

Tax not paid by supplier → reverse ITC + applicable interest

Section 41(2). Reversal is in the manner prescribed.

Re-availment

Supplier later pays tax → re-avail the credit reversed

Proviso to section 41(2). Done in the manner prescribed.

Ledger crediting

Self-assessed ITC in return → electronic credit ledger (section 49(2))

Cash deposits go to the electronic cash ledger under section 49(1), not the credit ledger.

What Section 38(1) makes available

Details of outward supplies (Section 37) + other prescribed supplies + auto-generated ITC statement → made available electronically to the recipient

Form, manner, time, conditions and restrictions are as prescribed.

Content of the statement, Section 38(2)

(a) inward supplies where ITC may be available; (b) supplies where ITC cannot be availed, wholly or partly

Clause (b) applies on the supplier-side grounds in sub-clauses (i) to (vi).

Reconciliation difference

Difference = ITC as per books − ITC in the 'may be available' part of the statement, Section 38(2)(a) (clause (b) items excluded)

Take only the clause (a) part of the statement as the comparator. Credit shown under clause (b) cannot be availed, so do not count it as supported. A positive difference means credit in books not supported by the clause (a) part. A negative difference means credit in the statement that is not in the books. Investigate both before claiming.

Supplier's outward details deadline, Section 37(1)

On or before the 10th day of the month following the tax period

Late reporting by the supplier delays when the credit shows in your statement.

Business purpose limit

Credit allowed = input tax attributable to business purposes

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

Exempt supply limit

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

Section 17(2). Credit attributable to exempt supplies must be reversed.

Common credit reversal (inputs and input services)

Reversal = Common credit × (Exempt turnover ÷ Total turnover)

Rule 42 of the CGST Rules works on this ratio after first removing blocked credit and credit used exclusively for taxable or exempt supplies. The ratio is worked out for the month and trued up for the year.

Common capital goods credit

Monthly credit = Tax on capital goods ÷ 60; reversal each month = monthly credit × (Exempt turnover ÷ Total turnover)

Rule 43 treats the credit as spread over five years (60 months). Use it only for capital goods used for both taxable and exempt supplies.

Banks and NBFCs option

Credit = 50% of eligible ITC each month; balance lapses

Section 17(4). The 50% limit does not apply to tax on supplies between registered persons having the same PAN. Option cannot be withdrawn during the financial year.

Blocked credit list

Section 17(5)(a) to (i)

Motor vehicles up to 13 persons, vessels and aircraft, related services, food and beverages and similar items, club memberships, employee travel benefits, works contract and own construction, composition tax, non-resident taxable person, CSR, personal use, lost or gifted goods, and tax paid under Section 74 up to FY 2023-24.

Credit pays output tax only

Electronic credit ledger → output tax (CGST Act or IGST Act)

Section 49(4). Interest, penalty and fee need cash under section 49(3).

IGST credit order

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

Section 49(5)(a). The order is fixed.

CGST credit order

CGST credit → CGST, then IGST

Section 49(5)(b). Never SGST/UTGST (section 49(5)(e)).

SGST/UTGST credit order

SGST/UTGST credit → SGST/UTGST, then IGST

Section 49(5)(c),(d). Never CGST (section 49(5)(f)). IGST only if CGST credit balance is not available for IGST.

Section 49A priority

Use IGST credit fully first, then CGST/SGST/UTGST credit

Applies to payment of any tax head, notwithstanding section 49.

Order of discharge of dues

(a) self-assessed tax and dues of earlier periods; (b) current period self-assessed tax and dues; (c) other amounts, including demands under section 73, 74 or 74A

Section 49(8).

Cap on credit use

Government may specify a maximum proportion of output tax payable through the credit ledger

Section 49(12), on Council recommendation. Check the notified limit in the question.

Entry credit: new registration (s.18(1)(a))

Credit on inputs in stock + inputs in semi-finished/finished goods, as on the day before liability to pay tax begins

Condition: applied for registration within 30 days of becoming liable. Subject to prescribed conditions. No credit on capital goods under this clause.

Entry credit: leaving composition (s.18(1)(c))

Credit on inputs in stock + semi-finished/finished goods + capital goods, on the day before liability under section 9 begins

Credit on capital goods is reduced by prescribed percentage points.

Exempt turns taxable (s.18(1)(d))

Credit on stock relatable to the exempt supply + capital goods used exclusively for it

Capital goods credit reduced by prescribed percentage points.

Time limit (s.18(2))

No credit if more than 1 year has passed from date of tax invoice

Applies to credit claimed under s.18(1).

Exit reversal (s.18(4))

Pay credit on stock + semi-finished/finished goods + capital goods (reduced by prescribed percentage points), on the day before the option or exemption

Pay by debit to the electronic credit ledger or electronic cash ledger. After payment, any balance of credit lying in the electronic credit ledger lapses.

Sale of capital goods (s.18(6))

Pay the higher of: (ITC taken − prescribed percentage points) or tax on transaction value under s.15

Scrap of refractory bricks, moulds, dies, jigs and fixtures: tax on transaction value may be paid.

Cancellation (s.29(5))

Pay the higher of: (a) ITC on inputs held in stock, inputs contained in semi-finished or finished goods held in stock, and capital goods or plant and machinery, on the day immediately preceding the date of cancellation, or (b) the output tax payable on such goods

For capital goods or plant and machinery, the proviso says pay the higher of the ITC taken reduced by prescribed percentage points, or the tax on the transaction value under section 15.

Capital goods reduction (as prescribed)

Reduction = percentage points prescribed under the CGST Rules

The Act says only 'such percentage points as may be prescribed'. It gives no figure. If a question states a rate, such as 5 percentage points per quarter, use it as given and say it is the rate supplied by the question. Do not quote it as a number in the Act.

ISD distribution (s.20)

Credit of central or integrated tax on input service invoices, distributed by a prescribed document

Applies to input services only. Central tax goes out as central or integrated tax; integrated tax goes out as integrated or central tax. Manner, time and conditions are as prescribed.

Output tax

Output tax = Value of taxable supply × Rate of tax

Value excludes GST itself. Work head-wise: intra-State supply gives CGST + SGST, inter-State supply gives IGST.

Net tax payable in cash

Cash payable = Output tax − ITC utilised (head-wise, in permitted order)

Credit only pays output tax. It cannot pay interest, penalty or fee.

Utilisation order (section 49(5))

IGST credit → IGST, then CGST, then SGST | CGST credit → CGST, then IGST | SGST credit → SGST, then IGST

SGST credit can pay IGST only where CGST credit is not available for IGST. CGST credit cannot pay SGST. SGST credit cannot pay CGST.

Interest on delayed tax (section 50)

Interest = Tax paid late × Rate × Days of delay ÷ 365

Rate not exceeding 18% as notified. Counted from the day after the due date. Where the return is filed late, interest is on the portion paid through the cash ledger.

Interest on ITC wrongly availed and utilised

Interest = ITC wrongly availed and utilised × Rate × Days ÷ 365

Rate not exceeding 24% as notified. Use the rate given in the question.

TDS under section 51

TDS = 1% × Value of supply (excluding taxes), if contract value exceeds ₹2,50,000

Deductor pays it within ten days after the end of the month of deduction. No deduction if supplier's location and place of supply are in a State different from the recipient's State of registration.

Order of discharge (section 49(8))

(a) Self-assessed tax and dues of earlier periods → (b) current period → (c) other amounts, including demands

Applies to tax and other dues together.

Quick revision

• Section 16(1): credit is allowed for goods or services used or intended to be used in the course or furtherance of business.
• Section 16(2) conditions: tax invoice or debit note, supplier's details furnished and communicated, receipt of goods or services, no restriction in communicated ITC, tax paid to Government, return filed.
• For goods received in lots or instalments, credit is taken on receipt of the last lot.
• If the recipient does not pay the supplier within 180 days of invoice, the credit must be paid back with interest. It can be re-availed once payment is made.
• Section 16(4) time limit: thirtieth day of November following the financial year, or the annual return, whichever is earlier.
• Section 16(3): no ITC on the tax component if depreciation is claimed on it under the Income-tax Act, 1961.
• Section 41: credit is availed on self-assessment and credited to the electronic credit ledger.
• Section 41(2): credit on supplies where the supplier has not paid tax is reversed with interest, and can be re-availed when the supplier pays.
• Section 38: the auto-generated statement shows credit that may be available and credit that cannot be availed.
• Section 49A: IGST credit must be used fully before other credits are used.
• Always remove blocked credits before apportioning for exempt supplies.
• Show the working: output tax, less eligible credit by type, equals cash payable.

Common mistakes

• Taking credit on a lot-wise basis when goods arrive in instalments. Fix: The first proviso allows credit only on receipt of the last lot or instalment.
• Applying the 180-day rule to reverse charge supplies. Fix: The rule excludes supplies on which tax is payable on reverse charge.
• Saying the department must approve the credit before it is credited. Fix: Write that credit is availed as self-assessed in the return and credited to the electronic credit ledger.
• Treating availment as unconditional once the invoice exists. Fix: Always add that it is subject to prescribed conditions and restrictions, and only for eligible input tax.
• Treating the auto-generated statement as a grant of credit. Fix: Write that the statement only communicates details. Eligibility still depends on the conditions for ITC.
• Saying GSTR 2A and GSTR 2B are mentioned in Section 38. Fix: Cite Section 38 for the auto-generated statement and use GSTR 2B only as its practical name.
• Treating all motor vehicle credit as blocked. Fix: Credit is blocked for vehicles seating up to 13 persons including the driver. It is allowed when the vehicle is used for further supply, passenger transportation or driving training.
• Blocking food, health or insurance credit without the proviso. Fix: Credit is available where the input is used to make an outward taxable supply of the same category, or as an element of a taxable composite or mixed supply.
• Using CGST credit to pay SGST liability, or the reverse. Fix: Remember section 49(5)(e) and (f): cross-use is barred. Only IGST credit moves across to both.
• Using CGST credit before IGST credit is used up. Fix: Always start with IGST credit and exhaust it before using any CGST or SGST credit.

Exam tips

• Write the section 16(2) conditions as a numbered list with clause letters, then apply each to the facts.
• Underline trap words in the facts: 'last lot', 'not paid', 'depreciation', 'annual return'.
• In case questions, follow provision, analysis, conclusion, and name the exact sub-section.
• Always state the 'whichever is earlier' logic when the question involves the time limit.
• Mention that reverse charge supplies are outside the 180-day rule when payment to the supplier is in the facts.
• Quote section 41(1) and 41(2) separately: entitlement first, reversal second.
• Use the exact phrases self-assessed, eligible input tax and electronic credit ledger.
• In case questions, always check supplier payment of tax before concluding.