In our case it will be- 3,50,000/5,50,000*54000= Rs. 34,364 (D1)
So according to our example, ₹ 34,364 is considered to be the ITC corresponding to the ‘Exempted Goods’ i.e. Milk.
2. For Personal Consumption
The formula calculates the amount by assuming 5% of inputs are used for personal purposes.
i.e. 5 % of Common Credit
By our example this becomes,
5% of 54,000
i.e. D2 = Rs. 2700
This should be reversed by the business in its GSTR-2 returns.
3. For Taxable Supplies
The formula to calculate this goes as shown below:
D3 = Common Credit – [ITC on the input of exempted supplies + ITC on personal consumption of goods]
D3 = 54,000 – [34,364 + 2700] = Rs.16,936
D3 = Rs.16,936
Now, we can calculate Total Eligible ITC available for this business for the current month can be calculated as:
Total Eligible ITC = ITC for Taxable Supplies + Common Credit for Taxable Supplies
ITC Available = 56,000 + 16,936 = Rs. 72,936.
To sum the complete process up, we can summarize it in simple words:
The basic thing we understand from the term ‘Common Credit’ is that it is trifurcated into 3 parts.
To calculate Total Eligible ITC
Impacts of Common Credit on Annual Returns
Businesses must adhere to the rules of the Common Credit under Input Tax Credit.
In the GSTR-2 format, a business has to furnish the details of the total ITC claimed during the financial year.
At this point, it is very important for the business that there remains NO difference between the ITC claimed during the year & the ITC of the annual return.
Failure in doing so may attract a penalty for claiming ineligible ITC and also may result in the blocking of your working capital.
To avoid all this mess, the businesses should have robust and GST software in place to allow you to manage all your Input Tax Credit details & also help reduce your manual efforts of reconciling your returns to claim maximum Input Tax Credit.
Common Credit’ is sure a tricky thing to understand, but the businesses must understand it well & that is what this article is intended at.
The best option to avoid all the further complications is to have an automated software infrastructure in place.
GSTHero is one such automated software that will help you in ITC Reconciliation and help you in claiming about 100% eligible Input Tax Credit.
With GSTHero’s ITC Reconciliation, you can:
Free up capital
GSTHero is a government-appointed GST Suvidha Provider (GSP), thus remains 100% compliant with the ever-changing rules of the GST.
Stay informed, stay ahead!
Until the next time…
Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.
Hope you all find it useful, please give your valuable feedback & let us know if there is an error. Thanks in Advance
I am a full-time professional Blogger & Entrepreneur. I already have many blogs on diversified topics and also manages more than 10 pages on assorted subject matters.
I have more than 5+ years of acetic and delightful experience in Blogging and writing on more than 100+ topics in English and Hindi both.
I started my blog as my dream project to help others to get knowledge with my content. I was not pro or perfect however I started imperfectly and achieved my end goals. Always remember the caption “You never lose, either you win it or learn it “
Contact us- [email protected]