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Common ITC Reversal in GST

Whenever a taxable person supplies both taxable (including zero rated) and exempted supplies. He has to reverse the common ITC (Input taken on services that are used for both taxable and exempted supplies) in the ratio of exempted supplies/total supplies. This is called common ITC reversal.

Relevant Section: Section 17(2) of CGST Act 2017
Relevant Rules: Rule 42/43 of the CGST Rules 2017

As per Rule 42, ITC reversal is required for that portion of common credit which is attributable to exempt supplies or for non-business use.

To calculate the common ITC reversal value we may use this formula:

Common ITC reversal value = Total ITC for common services * (exempted supplies/total supplies)

📝 Note: According to Section 2(47) exempted supply includes “nil rated supplies”.

Examples of Exempt Supplies

  • Sale of MEIS Script
  • Forward contract with banks (only 1% on value to be treated as exempt supply)
  • Supply of other exempt goods (including nil rated)

Examples of Common ITC

  • Banking Services
  • Auditor fee
  • Common accounting software
  • Internet charges etc.

GST Audit Checklist

We have compiled most common mistakes detected during GST Audit and have linked detailed articles on those topics for your reference. To visit click on GST Audit Checklist.

ITC Matching Software

To match the ITC taken by the taxpayer with the invoices uploaded in GSTR-2A, you can use our software GST Doctor ITC Matching Software which is available on Microsoft Store.

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