CGST Rule 42 — Manner of determination of input tax credit in respect of inputs or input services and reversal thereof
Official sources
Finin2min Summary - Rule in 2 Minutes
Where inputs/input services are used partly for taxable and partly for exempt supplies (or non-business purposes), this Rule sets out the formula to reverse the proportionate ITC attributable to the exempt/non-business use.
official statutory reference
Paragraph-wise decode
Common credit on inputs and input services used for both taxable and exempt supplies (or non-business purposes) is reversed in proportion to the exempt turnover to total turnover, computed monthly and finally reconciled annually, with any short-reversal added to output tax liability with interest and any excess reversal re-credited.
Section-Rule-Form-Notification bridge
Practical example
A company with both taxable sales and exempt rental income reverses the portion of its common overhead ITC (e.g. on office electricity) proportionate to the exempt rental turnover's share of total turnover.
Practical Q&A
- What does rule 42 regulate?
- It regulates rule 42 - Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. Read the exact text, conditions, exceptions and transaction date together.
- Which subordinate law should be checked?
- No CGST Rule corresponds directly to this provision. Notifications, circulars, forms and the corresponding SGST/UTGST layer may also apply.
- What evidence should be retained?
- Preserve the contract or transaction record, invoice or form, portal acknowledgement, payment/ledger evidence, correspondence, legal working and the official source version used.
- Can portal behaviour override the statute?
- No. Portal functionality is operational evidence; legal entitlement and liability remain controlled by the Act, Rules, notifications and binding decisions.
Professional rule note
Why Rule 42 matters
Manner of determination of input tax credit in respect of inputs or input services and reversal thereof should be read with its enabling CGST Act provision, prescribed forms, amendment notification, transaction date and the live portal workflow. The operative-text block on this page remains the legal core; the application controls add practical steps without altering it.
Rule → Form → evidence bridge
Practical cases
ITC claim
Reconcile invoice/legal eligibility with GSTR-2B/IMS and books; portal visibility alone is not legal entitlement.
Reversal/re-availment
Document trigger date, calculation, ledger treatment and conditions for re-availment.
Shared/common credit
Use a reproducible allocation working with evidence retained for audit and notice response.
Finin2min Q&A
- What does CGST Rule 42 deal with?
- Manner of determination of input tax credit in respect of inputs or input services and reversal thereof. Start with the operative Rule version and then test the connected Act provision, forms and amendments.
- Which GST form is connected to Rule 42?
- GSTR-3B The Rule and live portal workflow control.
- Can I rely only on the GST portal?
- No. Portal functionality is execution infrastructure; legal eligibility and consequences come from the Act, Rules and valid instruments.
- What should I keep on file?
- The official Rule version used, amendment/effective-date evidence, underlying transaction records, computation, portal submission and resulting acknowledgement/order.