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For Chartered AccountantsRates reviewed September 2026

ITC Reversal Calculator for Rules 42 and 43

ITC reversal under Rules 42 and 43 of the CGST Rules is the mechanism that stops input tax credit on common expenses from subsidising exempt supplies or personal consumption. If every rupee of input tax could be traced to a single taxable outward supply the rules would never bite, but rent, audit fees, software licences and factory machinery rarely work that way.

Rule 42 deals with inputs and input services. It breaks total input tax T into exclusively non-business credit, exclusively exempt credit, blocked credit under section 17(5), and exclusively taxable credit, and treats whatever is left as common credit C2. A turnover-based share of C2 is reversed as D1, and a further 5 percent of C2 is reversed as D2 for deemed non-business use.

Rule 43 does the same job for capital goods but spreads it over a useful life of five years, or 60 months. One sixtieth of the credit is brought into the calculation each month and the exempt share of that slice is added to output tax liability. Both rules are computed monthly on that month's turnover and then trued up once on the full year's figures.

ITC Reversal Calculator

Input tax on inputs and input services for the tax period.

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Exports and SEZ supplies count here, not in exempt turnover.

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Also run Rule 43 for capital goods

Spreads capital goods credit over a 60 month useful life.

ITC to reverse this period

₹25,000

D1 ₹20,000 plus D2 ₹5,000

C1 credited to the ledgerT less T1, T2 and T3
₹4,00,000
C2 common creditC1 less T4
₹1,00,000
Exempt turnover ratio (E ÷ F)
20%
D1 attributable to exempt supplies(E ÷ F) × C2
₹20,000
D2 deemed non-business5% of C2
₹5,000
C3 eligible common credit retainedC2 less D1 and D2
₹75,000
Rule 42 reversal this periodreport in Table 4(B)(1) of GSTR-3B
₹25,000
  • D2 is a deeming provision: it applies whenever common credit exists, even if actual non-business use is nil.
  • Recompute D1 and D2 on full-year turnover and settle the difference by the September return following the financial year.

The formula

C2 = T - (T1 + T2 + T3) - T4; D1 = (E ÷ F) × C2; D2 = 5% of C2; C3 = C2 - D1 - D2

T, T1, T2, T3
Total input tax in the period, and the parts of it used exclusively for non-business purposes, exclusively for exempt supplies, and blocked under section 17(5).
T4
Input tax on inputs and input services used exclusively for taxable supplies, including zero-rated supplies.
C2
Common credit, the residue that cannot be attributed exclusively to any one use.
E and F
Aggregate value of exempt supplies during the tax period, and total turnover in the state during the tax period.
C3
Eligible common credit that survives the reversal and stays in the ledger.

Rule 43 reuses the same E ÷ F ratio but applies it to Tm, one sixtieth of the capital goods credit, in each of 60 months.

How to calculate it

  1. 1

    Sort the month's input tax into buckets

    Take total input tax T for the tax period and separate out T1 for exclusively non-business use, T2 for exclusively exempt supplies and T3 for credit blocked by section 17(5). Only the remainder, C1, is credited to the electronic credit ledger. Getting T3 right matters because blocked credit never enters the common pool at all.

  2. 2

    Isolate the exclusively taxable credit

    Identify T4, the input tax on inputs and input services used wholly for taxable supplies, which includes zero-rated supplies to SEZ units and exports. The stronger your invoice-level tagging, the larger T4 becomes and the smaller the pool exposed to reversal.

  3. 3

    Compute the common credit and the turnover ratio

    Common credit C2 is C1 less T4. Then take E, the aggregate value of exempt supplies in the period, over F, the total turnover in the state. Exempt supplies include nil-rated and non-taxable supplies and supplies on which the recipient pays under reverse charge. Where turnover figures are not available for the period, Rule 42 allows the previous available ratio to be used.

  4. 4

    Reverse D1 and D2

    D1 is the exempt share, E divided by F applied to C2. D2 is a flat 5 percent of C2, the deemed portion attributable to non-business use, and it applies whenever common credit exists. Eligible common credit C3 is C2 less D1 and D2.

  5. 5

    Run Rule 43 for capital goods in parallel

    For capital goods used partly for exempt supplies or non-business purposes, take the common credit Tc, divide it by 60 to get the monthly slice Tm, aggregate the slices for all such capital goods into Tr, and reverse Te, being E divided by F applied to Tr. Te is added to output tax liability with interest, every month across the 60-month life.

  6. 6

    Report and then true up annually

    Show the Rule 42 and Rule 43 reversals in Table 4(B)(1) of GSTR-3B, the row for reversal as per Rules 42 and 43, so the credit does not remain in the ledger. After the year closes, recompute D1 and D2 on full-year turnover. A shortfall is paid in GSTR-3B or DRC-03 not later than the month of September following the financial year, with interest under section 50(1) running from 1 April of that succeeding year; an excess is reclaimed in the same return.

Rule 42 symbols and what each one captures

Rule 42 symbols and what each one captures
TermMeaning
TTotal input tax on inputs and input services in the tax period
T1Input tax on items used exclusively for non-business purposes
T2Input tax on items used exclusively for exempt supplies
T3Input tax blocked under section 17(5)
C1T less T1, T2 and T3, the amount credited to the electronic credit ledger
T4Input tax on items used exclusively for taxable supplies, including zero-rated supplies
C2C1 less T4, the common credit available for apportionment
D1(E ÷ F) × C2, the common credit attributable to exempt supplies
D25 percent of C2, the deemed non-business portion
C3C2 less D1 and D2, the eligible common credit retained

Worked example

Total input tax for the month (T)
₹5,00,000
Exclusively non-business (T1)
₹20,000
Exclusively exempt (T2)
₹50,000
Blocked under section 17(5) (T3)
₹30,000
Exclusively taxable, including exports (T4)
₹3,00,000
Exempt turnover (E)
₹20,00,000
Total turnover in the state (F)
₹1,00,00,000
  • C1 = ₹5,00,000 - (₹20,000 + ₹50,000 + ₹30,000) = ₹4,00,000
  • C2 = ₹4,00,000 - ₹3,00,000 = ₹1,00,000
  • E ÷ F = ₹20,00,000 ÷ ₹1,00,00,000 = 0.20
  • D1 = 0.20 × ₹1,00,000 = ₹20,000
  • D2 = 5% × ₹1,00,000 = ₹5,000
  • C3 = ₹1,00,000 - ₹20,000 - ₹5,000 = ₹75,000

Reverse ₹25,000 in Table 4(B)(1) of GSTR-3B; eligible common credit retained is ₹75,000

Frequently asked questions

They apply whenever inputs, input services or capital goods are used partly for taxable supplies and partly for exempt supplies, or partly for business and partly for non-business purposes. If every input is traceable to one use, reversal is not required and the credit is either fully claimed or fully denied. In practice, common overheads such as rent, audit fees and utilities almost always trigger Rule 42.
Rule 42 covers inputs and input services and reverses the exempt and non-business share in the same tax period the credit is taken. Rule 43 covers capital goods and spreads the exercise over a useful life of five years, bringing one sixtieth of the credit into the calculation each month. The turnover ratio, exempt turnover over total turnover, is identical in both.
D2 is a deeming provision. Rule 42 treats 5 percent of common credit C2 as attributable to non-business use without requiring proof, so it applies whenever common credit exists, even if the business can show that actual personal use is nil. It is computed on C2 and not on total input tax T.
In Table 4(B)(1), the row described as reversal as per Rules 42 and 43 of the CGST and SGST Rules and sub-section (5) of section 17. This row is for permanent reversals that cannot be reclaimed later, which distinguishes it from Table 4(B)(2) where temporary reversals sit before being reclaimed in Table 4(D)(1).
Rule 42(2) requires D1 and D2 to be recomputed on the aggregate turnover of the whole financial year rather than on each month in isolation. If the annual figures show you under-reversed, the excess is paid through GSTR-3B or DRC-03 not later than the month of September following the year end, with interest under section 50(1) from 1 April of that year. If you over-reversed, the difference is claimed back as credit in the same return.
The useful life of capital goods is taken as five years, which is 60 months counted from the date of invoice. The common credit on the asset, Tc, is divided by 60 to give the monthly amount Tm. The exempt share of the aggregated monthly amounts is added to output tax liability every month until the 60 months run out, so a machine bought in year one keeps generating reversals into year five.
E covers nil-rated supplies, wholly exempt supplies and non-taxable supplies such as alcohol for human consumption and the specified petroleum products. It also includes supplies on which the recipient pays tax under reverse charge, transactions in securities, and the sale of land and completed buildings. Zero-rated supplies such as exports and SEZ supplies are not exempt and stay out of E.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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