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Sanjay Dwivedi, Advocate

06th May, 2018 SRD Legal, Advocates & Consultants


 Credit of the tax paid on the inward supply is
available only when
 The inward supply is for use “in the course or
furtherance of business”
 The outward supply is NOT “exempted, nil rated,
or non-taxable”.

 Zero-rated supply is the only exception.

06th May, 2018 SRD Legal, Advocates & Consultants


 Full Credit available where inward supplies
are used for zero rated supplies

 Credit would be restricted where the goods


and/or services are
 partly used for business and non- business
purposes - section 17 (1)
 partly used for taxable and non-taxable supplies -
section 17 (2)
06th May, 2018 SRD Legal, Advocates & Consultants
 When tax on my outward supply is payable by
receiver under RCM, the supply to be treated
as ‘exempted’ – Thus, I won’t get credit. Sec
17(2)
 If the credit is blocked.
 If depreciation is claimed on the tax
component

06th May, 2018 SRD Legal, Advocates & Consultants


Goods or Services

Business Purpose Credit Available

Other Purposes Cr. Not Available

06th May, 2018 SRD Legal, Advocates & Consultants


Goods or Services

Taxable* Credit Available

Exempt** Cr. Not Available

*’Taxable’ includes zero rated **’Exempt’ includes RCM supplies

06th May, 2018 SRD Legal, Advocates & Consultants


A B C
Credit not Credit Cr. Partly
Available Available Available
• Non-business • Taxable • Common to
• Exempted • Zero-rated the two
• RCM (even if
• Blocked exempted)

06th May, 2018 SRD Legal, Advocates & Consultants


 Determine the Common Credits
 Identify the credits that are clearly not available..
 Identify the credits that are fully available
 Apportion the common credit in ratio of
turnover

06th May, 2018 SRD Legal, Advocates & Consultants


a. Total Tax (eligible as well as ineligible credits). T
Less: b. Used exclusively for the purposes other than T1
business
Less: c. Used exclusively for effecting exempt supplies T2
Less: d. Blocked credits T3
Net e. ITC to be credited to the e-Credit Ledger C1
C1 = T – (T1+T2+T3)

06th May, 2018 SRD Legal, Advocates & Consultants


f. Identify the invoices whose items are intended to T4
be used exclusively for effecting:
• supplies other than exempted; and
• zero rated supplies

Full amount of this credit (T4) is available.

g. Common Credit C2 = C1- T4 C2

06th May, 2018 SRD Legal, Advocates & Consultants


Exempt Reverse
Supplies (D-1)
Common Non- Reverse
Credit Business (D-2)
Balance
Eligible
Credit

06th May, 2018 SRD Legal, Advocates & Consultants


Credit attributable to exempt supplies :

'E' - aggregate value of exempt


supplies
Common
D1 = X
'F' - total turnover in the State Credits (C2)

06th May, 2018 SRD Legal, Advocates & Consultants


Credit attributable to non-business purposes

D2 = 5% of Common Credits (C2)

 D1 and D2 is to be paid back. Thus, finally the


credit that remains available:
C3 = C2 - (D1+D2)

06th May, 2018 SRD Legal, Advocates & Consultants


 Long life
 Use may change over period

• Non-
(b) • Common
Business • Taxable
• Exempted • Zero-rated

(a) (c)

06th May, 2018 SRD Legal, Advocates & Consultants


From To
Exempt Taxable
Exempt Common
Taxable Common
Taxable Exempt
Common Taxable
Common Exempt

06th May, 2018 SRD Legal, Advocates & Consultants


 Useful life of Capital Goods is assumed to be 5
years.
 5 Years = 20 quarters (each quarter represents
5% of the Credit)
 5 Years = 60 months (each month represents
1/60th of the Credit)

06th May, 2018 SRD Legal, Advocates & Consultants


Provision Before After ITC Method of Calculation
18 (1) Exempt Taxable Take credit (if Reduce 5% per quarter
(clause a) (clause b) depreciation not (or part).
claimed) Take the Balance Credit.
Rule 43 Exempt Common Same as above Same as above
(clause a) (clause c)
Rule 43 Taxable Common Credit already ‘A’ will be derived by
(clause b) (clause c) taken. Calculate ‘A’ reducing the credits
which shall be part @5% per quarter (or
of the common part thereof).
credit taken for
apportionment.

06th May, 2018 SRD Legal, Advocates & Consultants


Provision Before After ITC Method of Calculation
18 (4) Taxable Exempt Pay back the credit Calculate Credit on the
read with (clause (clause a) for the balance life. remaining useful life in
rule 44 b) month (ignore part of
the month). Credit per
month = total tax
divided by 60.

06th May, 2018 SRD Legal, Advocates & Consultants


 Maintain list of capital goods
 Record its use (exempt, taxable, common) –
every month
 Find total credit (full tax paid on the capital
goods) under common category.
 The above figure divided by 60 is the
common credit for the month (Tr)

06th May, 2018 SRD Legal, Advocates & Consultants


Common credit attributable towards exempted
supplies:

'E' - aggregate value of exempt


ITC on
supplies
Common
Te = X
'F' - total turnover in the State Cap.
Goods(Tr)
Apportioned credit should be calculated separately for CGST,
SGST (or UT GST), IGST

06th May, 2018 SRD Legal, Advocates & Consultants


 Supply of services having place of supply in
Nepal or Bhutan, against payment in Indian
Rupees (notification 42/2017-ITR).
 Services by way of accepting deposits,
extending loans or advances (interest or
discount is the consideration), except in case of a
banking company or a FI, NBFC; and
 Services by way of transportation of goods by a
vessel from the customs station of clearance in
India to a place outside India.
06th May, 2018 SRD Legal, Advocates & Consultants
Thanks 512, Ecstasy Business Park,
Citi of Joy, J. S. D. Road,
Sanjay Dwivedi Mulund (West),
Advocate Mumbai - 400 080.

9320 456 555 Tel. : +91-22-25 6565 47/ 48


sanjay@srdlegal.in : +91 90048 25702
Fax : +91-22-25 6565 49

06th May, 2018 SRD Legal, Advocates & Consultants

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