Verified · 29 Sept 2026
ITC Reversal Calculator – Rule 42 & Rule 37
Work out ITC to reverse on common credit used for exempt supplies (Rule 42), and on invoices not paid within 180 days (Rule 37), with interest.
✓ Verified against official notifications · 29 Sept 2026 · How we verify →
Common credit (C2)
₹2,00,000
Exempt share (E ÷ F)
20.00%
Reverse (D1 + D2)
₹40,000
D1 ₹40,000 · D2 ₹0
Eligible ITC (T4 + C3)
₹3,90,000
- Compute D1 and D2 every month in GSTR-3B, and true-up for the full year by the due date of September's return (Rule 42(2)).
- Reverse in Table 4(B)(1) of GSTR-3B.
FY 2026-27 · GST 2.0 slabs (5% / 18% / 40%) from 22 Sept 2025 · interest on net cash only (s.50 proviso, CBIC Circular 26/2022)Verify on gst.gov.in →Share on WhatsApp
For estimation only. This calculator applies the rules as we understand them on 29 Sept 2026. It is not legal or tax advice. Verify with the official notification or consult a Chartered Accountant / labour-law professional before filing or changing payroll.
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Rule 42: common credit and exempt supplies
If you make both taxable and exempt supplies, some of your input tax credit serves both. Rule 42 splits that shared credit by turnover. Credit used only for taxable supplies stays in full, and credit used only for exempt supplies, non-business use or blocked items comes out first.
| Step | Symbol | Example |
|---|---|---|
| Total ITC for the month | T | ₹1,00,000 |
| Less: used only for exempt supplies | T2 | ₹5,000 |
| Less: blocked under Section 17(5) | T3 | ₹3,000 |
| Credit left | C1 | ₹92,000 |
| Less: used only for taxable supplies | T4 | ₹52,000 |
| Common credit | C2 | ₹40,000 |
| Exempt share: C2 × ₹20 lakh exempt ÷ ₹1 crore total turnover | D1 | ₹8,000 |
| Eligible common credit | C3 | ₹32,000 |
The business keeps ₹52,000 + ₹32,000 = ₹84,000 and reverses ₹8,000 of common credit. The ₹8,000 of exempt-only and blocked credit was never available in the first place. If some inputs also serve personal or non-business use, D2 removes a further 5% of common credit.
The annual true-up
Monthly Rule 42 figures use that month's turnover, which swings with the season. After the year ends you recompute D1 and D2 on full-year turnover. Any extra reversal is paid with interest; any excess reversal is re-claimed. The adjustment goes in a return filed by the due date for September's GSTR-3B.
Rule 37: suppliers not paid in 180 days
Credit is conditional on paying the supplier. If you have not paid the value plus tax within 180 days of the invoice date, you reverse the credit on the unpaid part. If that credit was used to pay tax, interest runs from the date you claimed it; credit still sitting unused in the ledger is reversed without interest.
Example: an invoice dated 10 January 2026 for ₹1,18,000 carries ₹18,000 of tax, and the credit was claimed on 20 February. By 1 August only ₹59,000 has been paid, 203 days after the invoice. Half the invoice is unpaid, so ₹9,000 of credit is reversed. The credit was used to pay tax, so interest at 18% for the 162 days since the claim comes to ₹719.01.
When you pay the balance, the ₹9,000 comes back in the next GSTR-3B. There is no time limit on re-claiming it, but the interest is not refunded.
Keeping the numbers clean
- Record exempt turnover the way Rule 42 defines it: it includes nil-rated and non-GST supplies, but not zero-rated exports.
- Tag each purchase as taxable-only, exempt-only or common when you book it. Working this out at year end is where most errors creep in.
- Show the reversal in Table 4(B) of GSTR-3B so the portal can match it with your 2B credit.
Official sources
Frequently asked questions
What is D1 in Rule 42?
The part of common credit attributable to exempt supplies: common credit × exempt turnover ÷ total turnover.
What is D2?
5% of common credit, deemed to be for non-business purposes where inputs are used partly for them.
When do I reverse under Rule 37?
If you haven't paid the supplier the value plus tax within 180 days of the invoice date, reverse the proportionate ITC, with interest if the credit was used to pay tax. You can re-claim it after paying.
Is there an annual adjustment?
Yes. Rule 42 reversals are recomputed for the whole year and the difference adjusted by the due date of September's GSTR-3B.