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

Author
By Sakshi Shah on February 18, 2019

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 purpose. Thus, the common credit should be utilised 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 utilise Common Credit (ITC) or Proportionate Credit (ITC) under GST?

To utilize the common credit, two basic rules should be considered:

  1. ITC allowed for business purpose only
    • Input Tax Credit can be claimed only if the inward goods or services are used for business purpose. If they are used for personal consumption, ITC cannot be claimed or utilised.
  2. 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 utilised
Can a company claim a GST input tax credit on computers bought by it? The credit can be claimed if the computers are used for business purpose. Further, they must be used for sale of taxable goods or services.

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

How to calculate Eligible Input Tax Credit?