ITC Reversal as per Rule 42

[LAKSHMINARAYANAN TR]

If more than one business vertical are under same GSTIN itself, while applying Rule 42 for ITC Reversal- Total Turnover of entire GSTIN to be taken or same can be split into segment wise also ?

For ex:- Say, under one GSTIN there exists three Business Vertical - Hotel, Courier & Plastic. Hotel vertical has taxable and exempt supplies to calculate ITC Reversal for common input credit can we use the following

Common ITC (of Hotel Vertical) * Exempted Supply in Hotel Vertical

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Total Supply of Hotel Vertical

Or We have to consider the Total supply of all vertical (for the denominator)

Experts advice Please.

[Ganeshan Kalyani]

first you have arrive at ITC attributable to hotel vertical from total ITC. then from the ITC of hotel you have to apply the formula which you have mentioned in your query.

[LAKSHMINARAYANAN TR]

Dear Sir,

Let me reiterate with clear examples. All the verticals are registered under the one GSTIN only.

Say turnover of each vertical is ₹ 10L each. Total Sales ₹ 30L.

Plastic unit is fully exempt. No ITC availed all inputs and input services of Plastic Unit.

Hotel Unit - Say Taxable is ₹ 7L and exempt is ₹ 3L. Common Credit ₹ 10000.

Courier Unit - Fully Taxable services. ₹ 10L

Now to apply Rule 42 on ₹ 10000/- which formula is correct ?

10000 * 3L/10L = ₹ 3000/- + 500 (5% of 10000) OR

10000*13L/30L = ₹ 4333/- + 500

Experts advice please.

[Ganeshan Kalyani]

turnover of plastic, hotel and courier division put together is ₹ 30 lacs.

total common input tax credit is ₹ 10 thoudand.

formula

10,000 x 10 lacs ÷ 30 lacs = ₹ 3,333/- ( it means out of common credit of ₹ 10 thousand , ₹ 3,333/- is attributable to each division say, plastic, hotel and courier

₹ 3,333/- of plastic division is ineligible credit.

₹ 3,333/- of courier division is fully creditable .

₹ 3,333/- of hotel division need further birfucate into tax attributable to taxable product and exempt product. Formula : 3,333 x 7 lacs ÷ 10 lacs = 2,333. Here, ₹ 2,333/- is eligible credit.

hope your query is resolved from above example.

AI Summary

Input tax credit apportionment: apportion common credit across verticals by turnover, then apply Rule 42 for taxable versus exempt supplies.
Apportion the total common input tax credit across all business verticals under the GSTIN in proportion to each vertical's share of the GSTIN's total turnover; then, for a vertical supplying both taxable and exempt supplies, apply Rule 42 by multiplying that vertical's attributable common credit by the ratio of its exempt turnover to its own total turnover to compute the reversible ITC (with the example also adding a small percentage component to the computed reversal).