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CS Executive · Tax Laws and Practice · Input Tax Credit and Computation of GST Liability

Kaveri Industries Ltd, a registered company, supplies taxable goods and also exempt goods. It receives a common input on which the input tax is Rs 90,000, which is used for both supplies and cannot be directly attributed to either. Under section 17, the credit on this common input is:

Credit is limited to the part of the input tax attributable to taxable supplies, including zero-rated supplies. Where inputs serve both taxable and exempt supplies, section 17(2) requires apportionment, so neither full credit nor total denial applies.

  1. AFully available because some supplies are taxable
  2. BFully blocked because some supplies are exempt
  3. CRestricted to the portion attributable to the taxable supplies, including zero-rated suppliesCorrect
  4. DRestricted to the portion attributable to the exempt supplies

Explanation

Section 17(2) restricts credit, where inputs are used partly for taxable (including zero-rated) supplies and partly for exempt supplies, to the input tax attributable to the taxable supplies. Option A ignores the apportionment; option B wrongly denies all credit.

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