ITC Reversal Letter (Rule 42 / 43)
Record the reversal of common input tax credit attributable to exempt supplies, worked out under Rule 42 (inputs and services) or Rule 43 (capital goods).
What it is
A business making both taxable and exempt supplies cannot claim input tax credit on the portion of common inputs, input services and capital goods used for exempt supplies (Section 17(2) of the CGST Act). Rules 42 and 43 prescribe the method: credit used exclusively for exempt supplies is reversed in full, and common credit is apportioned in the ratio of exempt turnover to total turnover. This letter records the computation and the amount reversed for a tax period.
When it is used
- Businesses with both taxable and exempt supplies, such as financial services or real estate.
- Annual recomputation of the reversal after the year ends.
- Replying to a notice questioning ITC on exempt supplies.
What the template covers
- Entity name, GSTIN and address
- Applicable rule and tax period
- Total turnover and exempt supplies
- Common ITC available
- ITC reversed
- Authorised signatory
Details you will need
The generator asks for the following. Fields marked with an asterisk in the form are required; the rest can be left blank and filled in later in Word.
Letter
Letter Date; Place
Entity
Entity Name; GSTIN; Address
Reversal
Applicable Rule; Tax Period
Computation
Total Turnover for Period (₹); Exempt Supplies (₹); Common ITC Available (₹); ITC Reversed (₹)
Signatory
Authorised Signatory; Designation
Stamp duty, registration and filing
The reversal is computed monthly on a provisional basis and finalised for the whole year, with any difference reversed or reclaimed by the due date for the return for September following the year, with interest where applicable. Reversals are reported in GSTR-3B and in the annual return. Rule 43 spreads the credit on common capital goods over their useful life of five years. Check the current rules on cbic-gst.gov.in.
Generate the ITC Reversal Letter (Rule 42/43)
Fill in the form and download the draft as a Word file. It is a general template, not legal or professional advice; have it reviewed for your facts before you sign or rely on it.
Need this checked against your facts, or the registration or filing that follows (e.g. GST registration or returns)? Contact SKAG and Associates
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Frequently asked questions
What is common credit?
ITC on inputs, input services or capital goods used for both taxable and exempt supplies.
Is interest payable on ITC reversal?
Interest arises where ITC was wrongly availed and utilised. Reversals made correctly and on time under the rules generally do not attract interest.
Where is the reversal reported?
In Table 4(B) of GSTR-3B for the month, and in the annual return.
This page gives general information for reference only. Laws, stamp duty rates and filing requirements change and differ between States, so confirm the current position for your case. Related: all document templates · free tax calculators · compliance calendar and guides.