Manner of reversal of input tax credit on capital goods which are used partly for effecting taxable supplies including zero rated supplies or partly for business purpose and partly for other purpose is given in Rule 43 of CGST Rules, 2017.
a. The Amount of input tax in respect of capital goods used exclusively for non-business or used exclusively for effecting exempt supplies shall not be allowed and shall not be credited to his electronic credit ledger.
b. The entire amount of input tax in respect of capital goods used exclusive for effecting taxable supplies and zero rates supplies shall be allowed and shall be credited to his electronic credit ledger.
c. The Amount of input tax in respect of capital goods used partly for business purpose and partly for other purpose or partly for effecting exempt supplies and partly for effecting taxable supplies i.e. common credit shall be denoted as “A”.
d. The useful life of such capital goods shall be taken as five years from the date of the invoice for such goods.
e. Where capital goods previously used exclusively for non-business purpose, but later if used for effecting taxable supplies also. Then amount of input tax credit on such capital goods shall be taken by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value of common input tax credit in respect of capital goods.
f. The amount of common input tax credit attributable to a tax period on common capital goods during their useful life shall be calculated as Common Input Tax Credit/60.
g. The amount of input tax credit attributable to exempt supplies shall be calculated as Total of input tax on common capital goods attributable to tax period * Exempt Supply during the tax period/Total Turnover during the tax period.
h. The amount of input tax credit attributable to exempt supplies shall be added to output liability.
Formula of calculation of input tax credit to be reversed on common capital goods:- Useful life of capital goods shall be taken as five years.
Tc= Input Tax Credit attributable to common capital goods
Tm= Input Tax Credit attributable to tax period= Tc/60.
Tr= Sum total of Tm i.e. input tax credit attributable to tax period on all common capital goods.
Te= Tr*E/F
E= Exempt supplies during the tax period
F= Total Turnover during the tax period.