Rule 42 ITC Reversal Calculator

If you make both taxable and exempt supplies, part of your common input tax credit has to be reversed every month. Enter the period's figures to see how much.

How the Rule 42 formula works

  1. Take out credit that was never yours to keep: non-business (T1), exempt-only (T2) and blocked under 17(5) (T3). What remains is C1.
  2. Take out credit used only for taxable supplies (T4). It is kept in full. What remains, C2, is the common credit.
  3. Reverse the exempt share of C2 in proportion to turnover: D1 = E ÷ F × C2.
  4. If common inputs also serve non-business use, reverse a flat 5% of C2 as D2.
  5. Repeat on full-year figures after 31 March, and settle the difference by the September return.

Working out the year-end figures? The GSTR-9 summary and ITC dashboard show the year in one view.

Frequently Asked Questions

When does Rule 42 apply?

When inputs or input services are used both for taxable supplies and for exempt supplies or non-business purposes. A business that makes only taxable supplies has no common credit to reverse.

What counts as exempt turnover for Rule 42?

Nil-rated, wholly exempt and non-GST supplies, and supplies on which the recipient pays tax under reverse charge. Interest on deposits and loans is left out unless you are a bank or NBFC.

Is the Rule 42 reversal done every month?

Yes, provisionally, using that month's turnover. After the year ends you redo it on the full-year turnover. Report any shortfall by the September return of the next year, with interest.

Where is the Rule 42 reversal shown in GSTR-3B?

In Table 4(B)(1), along with Rule 43 and section 17(5) reversals. It is a permanent reversal, so it is not reclaimed later the way a Rule 37 reversal is.

Does Rule 42 cover capital goods?

No. Common credit on capital goods is apportioned under Rule 43, spread over a useful life of five years. This calculator handles inputs and input services only.