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Published on:
February 20, 2023
By
Paramita

GST: How to claim credit under 60%/40% scheme?

GST (Goods and Services Tax) is a comprehensive tax system implemented in India to replace multiple indirect taxes. This introduced the concept of Input Tax Credit (ITC), which allows taxpayers to claim credit for taxes paid on inputs used in goods or services produced or supplied. However, in some cases, the ITC claim may be restricted. One such case is the 60%/40% rule.

What is the 60%/40% rule?

The 60%/40% rule is a mechanism to restrict ITC claims when inputs are used for both taxable and exempt supplies or when inputs are used partly for personal and partly for business purposes. Under this rule, a taxpayer can claim ITC only to the extent of 60% of the eligible credit when inputs are used for both taxable and exempt supplies. In the case of inputs used partly for personal and partly for business purposes, the ITC claim is restricted to 40% of the eligible credit.

Eligibility for claiming ITC under the 60%/40% rule

To claim ITC under the 60%/40% rule, the following conditions must be met:

1. The taxpayer must be registered under GST.

2. The inputs must be used for both taxable and exempt supplies or partly for personal and partly for business purposes.

3. The taxpayer must have the necessary documents, such as tax invoices, to support the ITC claim.

4. The taxpayer must file the GST returns within the prescribed due dates.

Calculating ITC under the 60%/40% rule

The ITC claim under the 60%/40% rule is calculated as follows:

1. When inputs are used for both taxable and exempt supplies, the ITC claim is restricted to 60% of the eligible credit. The eligible credit is calculated as the total of all eligible credit for inputs used in both taxable and exempt supplies.

2. When inputs are used partly for personal and partly for business purposes, the ITC claim is restricted to 40% of the eligible credit. The eligible credit is calculated as the total of all eligible credit for inputs used partly for personal and partly for business purposes.

Steps to claim ITC under the 60%/40% rule

The following are the steps to claim ITC under the 60%/40% rule:

1. Calculate the eligible credit for inputs used for both taxable and exempt supplies or partly for personal and partly for business purposes.

2. Apply the 60%/40% rule to calculate the ITC claim.

3. Maintain necessary documents, such as tax invoices, to support the ITC claim.

4. File the GST returns within the prescribed due dates.

Conclusion

The 60%/40% rule is a mechanism to restrict ITC claims when inputs are used for both taxable and exempt supplies or when inputs are used partly for personal and partly for business purposes. To claim ITC under this rule, the taxpayer must meet certain conditions and follow the prescribed steps. It is essential to maintain proper records and file GST returns within the due dates to claim ITC under the 60%/40% rule.

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Updated on:
March 16, 2024