Apportionment of ITC - Taxable, Exempt and Common Supplies [Section 17(1)-(3)]
# Fundamentals for Availment of ITC [Section 17]
When a registered person uses inward supplies (inputs, input services, capital goods) for a mix of purposes, ITC must be split according to end-use.
## Three Buckets
End-Use
ITC Treatment
Exclusively for taxable supply or zero-rated supply (ZRS)
Full ITC allowed
Exclusively for non-business (personal) or exempt supply
NO ITC
Common — used for both taxable/ZRS AND exempt/non-business
Proportionate ITC on taxable/ZRS portion using Rule 42/43(detailed mechanics not in CA Inter syllabus)
## Key Definitions
Exempt supply includes:
Nil-rated supply
Supply of wholly exempted goods/services
Non-taxable supply (e.g. alcoholic liquor for human consumption)
Zero-rated supply means:
Exports, and
Supply to SEZ developer or SEZ unit
> Important contrast:Nil-rated ≠ Zero-rated. Both attract no GST output, but only zero-rated keeps ITC alive. Nil-rated falls under 'exempt' — ITC denied.
Worked example
### Example 1
Quick classification examples
Inward Supply
ITC Available?
Material used to make supply to SEZ unit
Yes — supply to SEZ is zero-rated
Material used to make exports
Yes — export is zero-rated
Material used to make wholly exempted goods (e.g. fresh fruits)
No — exempt
Material used for personal consumption of directors
No — non-business
Stationery used in office partly for exempt and partly taxable supply
Proportionate — Rule 42 (formula not in syllabus)
⚠️ Common exam mistakes
Equating nil-rated supply with zero-rated supply — only the latter allows ITC.
Forgetting that supply to SEZ is zero-rated (and therefore preserves ITC).
Claiming full ITC on a common input used for both taxable and exempt supply.
Not treating 'non-taxable supply' (e.g. petrol, alcohol) as exempt for ITC apportionment.
Bare-Act text Section 17(1) to 17(3) · CGST Act, 2017 · click to expand
Section 17(1): Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
Section 17(2): Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Section 17(3): The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.