Rules 42 and 43: common credit reversal

Rule 42 — inputs and input services

1. Credit used only for exempt or non-business → reverse fully (T1, T2).
2. Blocked credit → reverse (T3).
3. Credit used only for taxable supplies → keep.
4. Common credit (C2) is split:

• D1 (exempt share) = C2 × Exempt turnover ÷ Total turnover
• D2 (non-business share) = 5% of C2

1. Reverse D1 + D2 every month; recalculate for the whole year and adjust by the September return of the next year.

Example: common credit ₹50,000; exempt turnover ₹20 lakh of total ₹1 crore → D1 = ₹10,000; D2 = ₹2,500 → reverse ₹12,500.

Rule 43 — capital goods

• Common capital goods have a useful life of 5 years (60 months).
• Monthly common credit (Tm) = Credit ÷ 60.
• Monthly reversal (Te) = Tm × Exempt turnover ÷ Total turnover.
• Recalculate at year end.

Reporting

GSTR-3B Table 4B(1). Keep the working in your files for audit.

Sources

• Central Goods and Services Tax Rules, 2017