A business may have an inward supply of input goods, input services and capital goods. Further, the inward goods and services may be used for a personal purpose or business purpose. The total input tax credit available on all such purchases is called Proportionate Credit ot Common Credit under GST. The taxpayer cannot claim the credit on the inputs used for personal purposes. Thus, the common credit should be utilized proportionately while making payment of output tax liability.
Example
Mr.X runs a business of selling computers and laptops. He purchases 10 laptops for Rs.5,00,000 including GST Rs.50,000. He gifts 1 laptop to his wife. Can he claim the input tax credit of Rs.50,000?
Solution
Since the input goods are used for personal and business purpose, the Input Tax Credit of Rs. 50,000 is called Common Credit. It can be claimed for only those goods that were actually used for business purpose. Thus, Mr.X can claim ITC of 9 laptops i.e. Rs. 45,000 (9*50,000/10)
How to utilize Common Credit (ITC) or Proportionate Credit (ITC) under GST?
To utilize the common credit, two basic rules should be considered:
- ITC allowed for business purpose only
The Input Tax Credit can be claimed only if the inward goods or services are used for business purposes. If they are used for personal consumption, ITC cannot be claimed or utilized.
- ITC allowed for the sale of taxable goods or services only
Input Tax Credit can be claimed only if the inward goods or services are used for the sale of taxable supplies. If they are used for the sale of exempt supplies, ITC cannot be claimed or utilized
Summary for steps to utilise common credit
|
Purchase of: |
Used for |
Claim ITC |
|
Input Goods or Input Services |
Business purpose |
Yes |
|
Personal Purpose |
No |
|
|
Both business and personal purpose |
Claim eligible ITC |
|
|
Input Goods or Input Services |
Sale of taxable goods and services |
Yes |
|
Sale of exempt goods and services |
No |
|
|
Sale of both taxable and exempt goods and services |
Claim eligible ITC |
FAQs
A business may have an inward supply of input goods, input services and capital goods. Further, the inward goods and services may be used for a personal purpose or business purpose. The total input tax credit available on all such purchases is called Common Credit or Proportionate Credit.
The taxpayer cannot claim the credit on the inputs used for personal purposes. Thus, the common credit should be utilized proportionately while making payment of output tax liability.
For utilizing Common Credit (ITC), two basic rules should be kept in mind:
1. ITC allowed for business purpose only
2. ITC allowed for the sale of taxable goods or services only
Hey @HarshitShah
Input Tax Credit is the credit of GST paid on the purchase of goods or services. It is utilized to pay GST on the sale of goods or services. In order to be eligible to claim Input Tax Credit one must be registered under GST.
To understand the conditions under which you can claim Input Tax Credit, please refer to this article.