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CA Intermediate · Taxation · Input Tax Credit

Gupta Pharma Ltd supplies taxable medicines and also exempt services. In a month its common ITC (not attributable to any specific supply) on input services is Rs 2,40,000. Its exempt turnover is Rs 10,00,000 and total turnover is Rs 40,00,000 for that month. Ignoring other reversals, what common credit is to be reversed (rule-based proportion) for the month?

Rs 60,000 must be reversed. Common credit of Rs 2,40,000 is apportioned by the ratio of exempt turnover to total turnover, which is 10 lakh over 40 lakh, one fourth, giving Rs 60,000 as the ineligible portion.

  1. ARs 60,000Correct
  2. BRs 1,80,000
  3. CRs 2,40,000
  4. DRs 96,000

Explanation

Reversal on common credit = common ITC x exempt turnover / total turnover = 2,40,000 x 10/40 = Rs 60,000. Rs 1,80,000 is the credit that remains eligible, i.e. using the taxable ratio by mistake.

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