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CA Intermediate · Taxation · Input Tax Credit

Kaveri Textiles, a registered person, has a taxable supply turnover and an exempt supply turnover in a month. Common input GST of Rs 1,20,000 was received that is used for both taxable and exempt supplies. Total turnover for the month is Rs 50,00,000, of which exempt supplies are Rs 10,00,000. Ignoring other reversals, what is the ITC attributable to exempt supplies that must be reversed?

The reversal is Rs 24,000. Common credit used for taxable and exempt supplies is apportioned by the ratio of exempt turnover to total turnover, which is one fifth here, so one fifth of Rs 1,20,000 is reversed. The remaining Rs 96,000 stays as eligible ITC.

  1. ARs 24,000Correct
  2. BRs 96,000
  3. CRs 12,000
  4. DRs 20,000

Explanation

Under rule 42 the common credit attributable to exempt supplies is the common credit multiplied by exempt turnover divided by total turnover. That is 1,20,000 x 10,00,000 / 50,00,000 = Rs 24,000. Rs 96,000 is the eligible credit, not the reversal.

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