How to calculate Eligible Input Tax Credit?

Author
By Sakshi Shah on February 18, 2019

Eligible Input Tax Credit is that portion of Common Input Tax Credit which can be utilised for payment of output tax liability.
The ITC on inputs used for personal consumption or the ITC on inputs used for the sale of exempt goods or services is called ineligible ITC.
It cannot be used for paying taxes under GST. Thus, it is important to calculate eligible ITC from the Common ITC.

What is Common Credit (ITC) or Proportionate Credit (ITC) under GST?

Example

Following are the details of Input Tax Credit of business of Mr. X for January 2019:

ITC on Input Goods used for business purposeRs. 50,000
ITC on Input Goods used for personal purposeRs. 10,000
ITC on Input Goods used for sale of taxable goodsRs. 30,000
ITC on Input Goods used for sale of exempt goodsRs. 40,000
ITC on Input Services used for business and personal purpose*Rs.1,00,000
ITC on Input Services used for sale of taxable and exempt goodsRs. 60,000
Ineligible ITCRs. 10,000
Turnover of exempt goodsRs.2,40,000
Turnover of taxable goodsRs.4,80,000

*It is assumed that 10% of the input services are used for personal purpose

Solution

  1. Calculation of ITC on services used for personal purpose
    ITC used for business + personal purpose * % used for personal purpose
    Rs.1,00,000 * 10% = Rs.10,000
  2. Calculation of ITC on services used for the sale of exempt goods
    ITC used for exempt + taxable sales * Exempt Goods Turnover / Total Turnover
    Rs.60,000 * Rs.2,40,000/Rs.7,20,000 = Rs.20,000
  3. Calculation of Eligible ITC
ITC on Input Goods used for business purpose Rs. 50,000
ITC on Input Goods used for sale of taxable goodsRs. 30,000
Proportionate ITC on Input Goods used for business purpose
(Rs.1,00,000 – Rs.10,000)
Rs. 90,000
Proportionate ITC on Input Goods used for the sale of taxable goods
(Rs.60,000 – Rs.20,000)
Rs. 40,000
Total Eligible ITCRs. 2,10,000