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CA Intermediate · Taxation · Input Tax Credit

Kapoor Industries purchased a machine for Rs 10,00,000 plus IGST Rs 1,80,000 and took full ITC of Rs 1,80,000 in April 2024. In April 2026, exactly 24 months later (8 quarters), it sold the machine for Rs 7,00,000 plus GST. Assume the machine was used for taxable supplies throughout. What is the minimum amount payable on the sale, as the higher of (a) ITC reduced by 5% per quarter of the time elapsed, or (b) the tax on transaction value?

Rs 1,26,000 is payable. The reduced ITC is Rs 1,08,000 after 40% reduction for eight quarters, but tax on the transaction value at 18% on Rs 7,00,000 is Rs 1,26,000, and the higher of the two applies.

  1. ARs 1,08,000
  2. BRs 1,26,000Correct
  3. CRs 1,80,000
  4. DRs 1,08,000 only if the GST rate on the sale is 18% on Rs 7,00,000, else Rs 1,26,000

Explanation

(a) ITC reduced by 5% per quarter for 8 quarters = 40%, so 1,80,000 x 60% = Rs 1,08,000. (b) Tax on transaction value at 18% on Rs 7,00,000 = Rs 1,26,000. The higher is Rs 1,26,000. Option 1 ignores the comparison with transaction value tax.

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