GST ITC Reversal Calculator
Apportion common input tax credit between taxable and exempt supplies under Rule 42 — compute C2, D1, D2, eligible credit C3 and net eligible ITC live.
Rule 42 working
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Disclaimer: Indicative estimate under Rule 42 of the CGST Rules, 2017. Actual reversal depends on your exempt-supply classification, capital-goods (Rule 43) treatment and annual true-up. Verify with a professional.
What Rule 42 does — common credit apportionment
When a business makes both taxable and exempt supplies, ITC on inputs and input services used for both cannot be fully claimed. Rule 42 splits this "common credit" so that only the portion relating to taxable (and zero-rated) supplies stays eligible; the rest is reversed. A separate flat 5% is reversed as a deemed non-business portion.
The Rule 42 formula, step by step
Start from total input tax T, strip out the ITC that is either blocked or exclusively attributable, then apportion whatever common credit remains between exempt use and non-business use.
| T1Blocked credit u/s 17(5) | Excluded |
| T2Exclusively for exempt supplies | Excluded |
| T3Exclusively non-business / personal | Excluded |
| T4Exclusively for taxable + zero-rated | Fully eligible |
| C2Common credit = T − (T1+T2+T3+T4) | Apportioned |
| D1Exempt reversal = (E ÷ F) × C2 | Reversed |
| D2Deemed non-business = 5% × C2 | Reversed |
| C3Eligible common = C2 − D1 − D2 | Eligible |
| ↺Total reversal = D1 + D2 | Add to output |
| ✓Net eligible ITC = T4 + C3 | Claimable |
Worked example
Total input tax T = ₹1,00,000, with blocked ITC (T1) ₹5,000, exempt-exclusive (T2) ₹10,000, personal-exclusive (T3) ₹5,000 and taxable-exclusive (T4) ₹40,000. Exempt turnover E = ₹8,00,000 against total turnover F = ₹40,00,000.
Key terms explained
Common credit (C2)
ITC on inputs and input services used for both taxable and exempt supplies. It is what remains after removing blocked (T1) and exclusively-attributable (T2, T3, T4) credit from total input tax T.
D1 — exempt reversal
The slice of common credit attributable to exempt supplies, computed as (E ÷ F) × C2, where E is exempt turnover and F is total turnover. This amount is reversed and added to output tax.
D2 — deemed reversal
A flat 5% of C2 treated as attributable to non-business use, reversed regardless of actual usage. It is added to output tax liability along with D1.
Annual true-up
Rule 42 is applied monthly on provisional figures, then recomputed for the whole year and trued-up by September of the following financial year (Rule 42(2)); shortfalls carry interest.
When does Rule 42 apply?
Where inputs and input services are used partly for taxable or zero-rated supplies and partly for exempt supplies or non-business purposes. The common credit has to be apportioned and the exempt and non-business share reversed.
How are D1 and D2 computed?
From the common credit C2: D1 is the exempt share, computed as C2 × exempt turnover ÷ total turnover. D2 is the deemed non-business share, taken as 5% of C2. D1 plus D2 is reversed in GSTR-3B.
What counts as exempt turnover?
Exempt and nil-rated supplies, non-taxable supplies including alcohol for human consumption, supplies on which the recipient pays under reverse charge, and transactions in securities and land and completed buildings, valued as prescribed.
Is a year-end adjustment required?
Yes. Rule 42 requires the monthly reversals to be recomputed for the whole financial year using annual figures, and the difference paid with interest or claimed as additional credit, by the return for September of the following year.
What is the difference between Rule 42 and Rule 43?
Rule 42 deals with inputs and input services. Rule 43 deals with capital goods, where the credit is spread over 60 months and the exempt share of each month's instalment is reversed.
Disclaimer: This tool gives indicative results for general guidance only and is not professional advice. Please verify with a qualified CA before acting on the numbers.