Type of ITC & Common Credit
- A business pays tax when it makes purchases or incurs expenses to the supplier – this tax paid is called “Input Tax Credit” (ITC). This ITC can be used to pay the GST Liability on Sales made.
- But not all ITC can be used to pay the GST Liability on Sales. It can be classified into 3 categories based on eligibility for payment of GST Liability:
- Eligible ITC: Such ITC can be fully used to make payment of GST Liability. Eg: Tax paid on Purchases for making outward taxable supplies
- Ineligible ITC: Such ITC cannot be used to make payment of GST Liability. Eg: Tax paid on personal expenses, purchase of motor cars, catering services, etc.
- Common ITC/Credit or Proportionate Credit: Such ITC can be availed but not in full. They can only be partly availed.
- Common credit becomes relevant when a business has both taxable & exempt outward supplies (in any other case, Common Credit is not relevant) – such supplies which is used towards both exempt & taxable supplies will be referred to as as “Common Supplies” in this article
- ITC on Common Supplies can be availed in proportion to the value of taxable & exempt supplies.
Common Credit Rules:
Common Credit needs to be ascertained for inputs & capital goods
In case of inputs, ITC on common credit that can be availed is:
Value of Taxable Supplies for the monthValue of Total Supplies for the month×Common Credit for the month
Such availment is only on provisional & the figure needs to be recalculated at the end of the year for the full year & the any excess credit availed should be reversed along with interest @ 24% pa
In case of capital goods, entire ITC on common credit will be availed in the current month & every month the following amount shall be reversed for 60 months (5 years):
Value of Exempt Supplies for the monthValue of Total Supplies for the monthSum of Credit on all the assets which are used for common purpose60
Note: For sum of credit on all assets which are used for common purpose, consider the full value of ITC on all assets which purchased for common purpose in the last 60 months
Illustration:
Let us understand with the following example:
- Value of taxable items sold = Rs.5,00,000
- Value of exempted goods sold = Rs.2,00,000
- Total input tax available during the tax period = Rs.1,00,000
- ITC used exclusively used for taxable supplies = Rs.10,000
- ITC used exclusively for exempted goods = Rs.20,000
- Ineligible ITC = Rs.10,000
- ITC on Capital Goods used for both taxable & exempt supplies (Common Credit on Capital Goods) = Rs.35,000
Below is the statement showing the break-up of the ITC available:
| Particulars | ITC Eligiblility | Amount (Rs.) |
| Total ITC Available | 100,000 | |
| Less: ITC used exclusively used for taxable supplies | Can be Fully Availed | (10,000) |
| Less: ITC used exclusively for exempted goods | Fully Ineligible | (20,000) |
| Less: ITC on Capital Goods used for both taxable & exempt supplies | Refer Below for eligibility | (35,000) |
| Less: Ineligible ITC | Fully Ineligible | (10,000) |
| Common Credit on Inputs for the month | 25,000 |
Below is the calculation of the ITC to be availed for the month:
| Particulars | Amount (Rs.) |
| ITC used exclusively used for taxable supplies | 10,000 |
| Add: ITC on Common Credit on Inputs Rs.25,000 * 5 Lacs /(5 Lacs + 2 Lacs) | 17,857 |
| Add: ITC on Common Capital Goods | 35,000 |
| Less: ITC Reversal on Common Capital Goods (2 Lacs /(5 Lacs + 2 Lacs)) * Rs.35,000 / 60 | (167) |
| ITC to be availed for the month | 62,690 |
