20-May-2020 Amendments in Rule 43 of CGST Rules 2017
gst input-tax-credit itc goods-and-service-tax gst-rule-43 rule-43 rule-43-of-cgst-rules itc-reversalOn recommendations made in 39th GST Council Meeting held on March 14, 2020 amendment is made to procedure for reversal of ITC in respect of capital goods partly used for affecting taxable supplies and partly for exempt supplies under Rule 43 (1) (c) of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”).
Amendments in Rule 43 of CGST Rules 2017
(Manner of Reversal of ITC in respect of Capital Goods)
In 39th
GST Council meeting held on 14th March, 2020, inter-alia, it was
recommended to amend the procedure for reversal of input tax credit in respect
of capital goods partly used for affecting taxable supplies and partly for
exempt supplies under rule 43 (1) of CGST Rule, 2017.
The Central Government vide Notification
No. 16/2020- Central Tax dated 23rd March 2020 has made the
amendments effective from 1st April, 2020, in Rule 43 of the
CGST Rules.
Background
Section 17(1) & (2) of the CGST
Act, 2017 states that where the Input tax credit is used partly for the purpose
of business and partly for other purpose or partly used for effecting taxable
supplies (including zero rated supplies) and partly for effecting exempt
supplies then the amount of ITC as attributable to exempt supplies or non-
business purpose shall be reversed as per Rule 42/43 of the CGST Rules, 2017.
Rule 43 lays down the manner
of determination of input tax credit in respect of capital goods and
reversal thereof in certain cases.
As per Rule 43(1),"Subject to the
provisions of section 16(3), the input tax credit in respect of capital goods,
which attract the provisions of section 17(1) & (2), being partly used for
the purposes of business and partly for other purposes, or partly used for
effecting taxable supplies including zero rated supplies and partly for
effecting exempt supplies, shall be attributed to the purposes of business or
for effecting taxable supplies in the following manner"
A comparative analysis of the amendments in
various clauses of sub-rule 1 of Rule 43:
|
Clause |
Before
Amendment |
After Amendment |
|
(a) |
the amount of
input tax in respect of capital goods used or intended to be used exclusively
for non-business purposes or used or intended to be used exclusively for
effecting exempt supplies shall be indicated in FORM GSTR-2 and FORM
GSTR-3B and shall not be credited to his electronic credit ledger; |
No change in
clause |
|
(b) |
the amount of
input tax in respect of capital goods used or intended to be used exclusively
for effecting supplies other than exempted supplies but including
zero-rated supplies shall be indicated in FORM GSTR-2 and FORM GSTR-3B
and shall be credited to the electronic credit ledger |
No change in
clause |
|
(c) |
the amount of
input tax in respect of capital goods not covered under clauses (a) and
(b), denoted as ‘A‘, shall be credited to the electronic credit ledger
and the useful life of such goods shall be taken as five years from the date
of the invoice for such goods: Provided that
where any capital goods earlier covered under clause (a) is subsequently
covered under this clause, the value of ‘A‘ shall be arrived at by reducing
the input tax at the rate of five percentage points for every quarter or part
thereof and the amount ‘A‘ shall be credited to the electronic credit ledger; Explanation - An item of capital goods declared
under clause (a) on its receipt shall not attract the provisions of
sub-section (4) of section 18, if it is subsequently covered under this
clause. |
the amount of
input tax in respect of capital goods not covered under clauses (a) and (b),
denoted as ‘A’, being the amount of tax as reflected on the invoice,
shall credit directly to the electronic credit ledger and the validity of the
useful life of such goods shall extend upto five years from the date of the
invoice for such goods: Provided that
where any capital goods earlier covered under clause (a) is subsequently
covered under this clause, input tax in respect of such capital goods denoted
as ‘A’ shall be credited to the electronic credit ledger subject to the condition
that the ineligible credit attributable to the period during which such
capital goods were covered by clause (a),denoted as ‘Tie’, shall
be calculated at the rate of five percentage points for every quarter or part
thereof and added to the output tax liability of the tax period in which such
credit is claimed: Provided further that the amount ‘Tie’ shall
be computed separately for input tax credit of Central tax, State tax, Union
territory tax and Integrated tax and declared in FORM GSTR-3B. Explanation - An item of capital goods declared
under clause (a) on its receipt shall not attract the provisions of
sub-section (4) of section 18, if it is subsequently covered under this
clause. |
|
(d) |
the
aggregate of the amounts of ‘A‘ credited to the electronic credit ledger under
clause (c), to be denoted as ‘Tc‘, shall be the common credit in respect
of capital goods for a tax period: Provided
that where any capital goods earlier covered under clause (b) is subsequently
covered under clause (c), the value of ‘A‘ arrived at by reducing the input
tax at the rate of five percentage points for every quarter or part thereof
shall be added to the aggregate value ‘Tc‘ |
the
aggregate of the amounts of ‘A’ credited to the electronic credit ledger
under clause (c) in respect of common capital goods whose useful life remains
during the tax period, to be denoted as ‘Tc’, shall be the common
credit in respect of such capital goods: Provided
that where any capital goods earlier covered under clause (b) are
subsequently covered under clause (c), the input tax credit claimed in respect
of such capital good(s) shall be added to arrive at the aggregate value ‘Tc’ |
|
(e) |
the
amount of input tax credit attributable to a tax period on common capital
goods during their useful life, be denoted as ‘Tm‘ and calculated as- Tm = Tc ÷60 |
the
amount of input tax credit attributable to a tax period on common capital
goods during their useful life, be denoted as ‘Tm‘ and calculated as- Tm = Tc ÷60 Explanation.-
For the removal of doubt, it is
clarified that useful life of any capital goods shall be considered as five
years from the date of invoice and the said formula shall be applicable
during the useful life of the said capital goods |
|
(f) |
the
amount of input tax credit, at the beginning of a tax period, on all common
capital goods whose useful life remains during the tax period, be denoted as
‘Tr‘ and shall be the aggregate of ‘Tm‘ for all such capital goods; |
Completely
omitted |
|
(g) |
the
amount of common credit attributable towards exempted supplies, be denoted as
‘Te‘, and calculated as- Te= (E÷ F) x Tr where, 'E' is
the aggregate value of exempt supplies, made, during the tax period, and 'F' is the
total turnover in the State of the registered person during the tax period |
No
change in clause Te=
(E÷ F) x Tm |
|
(h) |
The amount ‘Te’
along with the applicable interest shall, during every tax period of the
useful life of the concerned capital goods, be added to the output tax
liability of the person making such claim of credit. (i)
The amount ‘Te’ shall be computed separately for input tax credit of Central
Tax, State tax, Union territory tax and Integrated tax and declared in FORM
GSTR-3B. |
No
change in clause |