Rule 42 calculations

[SARTHAK MITTAL]

I have a query in respect of annual calculations of Rule 42.

Will adjustments of prior fiscal be de-considered while computing annual calculations of Rule 42 of current fiscal.

For instance for annual calculations of FY 21-22, will re-credit of ITC (In Sep'21 return) for FY 20-21 due to annual recalculations of Rule 42 be removed for the purpose of NET ITC?

Particulars	Option-1	Option-2
ITC availed during FY 21-22	100	100
Re-credit of ITC pertaining to FY 20-21 in Sep'21 return due to 42-43 annual calc.	10	10
Total credit availed during FY 21-22	110	110
Exempt turnover/Total turnover	10%	10%
ITC to be reversed	11 (10% of 110)	10 (10% of 100)

[PAWAN KUMAR]

Dear sir,

as per my view, the amount of ITC credited to ECL will be the net ITC for the year only.

in the above table, option 1 is correct.

[Ganeshan Kalyani]

Rule 42 would have been applied for Fy 2020-21 credit so now no need to include the same again.

[SARTHAK MITTAL]

But if we go by the wordings used in Rule 42, it says ITC for a 'Tax period' in monthly calculations.

So if we r calculating for a full fiscal, credit availed during fiscal should be considered. Moreover, re-credit of ITC of previous fiscal has been credited to ECL so shouldn't this also be considered for reversal

[Ganeshan Kalyani]

R 42(1)(a) states as below-

(a) the total input tax involved on inputs and input services in a tax period, be denoted as ‘T’;

read "in a tax period" in above rule.

You would have considered credit of fy 20-21 for rule 42 after fy is closed with actual turnover before sept. And any credit of fy 20-21 availed in sep21 you would have considered correct ratio. So again offering the credit taken in sep 21 for rule 42 is not required.

If you have not done so then consider credit taken in a financial year irrespective of the year to which the credit pertains to.

[SARTHAK MITTAL]

Agreed Ganesh Ji.

But this is not flowing from the wordings of the law. Therefore had raised the issue.

[PAWAN KUMAR]

Dear sir,

In case of preparing filing GSTR-9/9C, the credit which reflected in ECL is the ITC for that year only, so based on this itc of previous year is to be considered the claim of which has been made in books as well as in GST during current year. please guide

[Shilpi Jain]

There is no requirement in the law to correlate the credit with the month/year of usage. The reversal of credit in rule 42 is based on the date of availment.

This is also coming out from the circular on compensation cess refund where refund is allowed on the basis of the month in which it is availed.

Hence, keeping it simple, choose the 1st option.

[SARTHAK MITTAL]

Exactly...

AI Summary

ITC apportionment: include credits availed in the fiscal year for annual compliance, excluding amounts already apportioned. Annual Rule 42 calculations should generally include ITC credited to the Electronic Credit Ledger during the fiscal being reconciled, including re-credits posted in returns for prior-year credits, because apportionment is tied to the date of availment. If identical credit amounts were already apportioned under Rule 42 for the prior fiscal after actual turnover was finalised, those previously apportioned amounts should not be included again in the current fiscal's reversal.