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CA Intermediate · Taxation · Input Tax Credit

Kaveri Traders, a registered dealer in Pune, supplies both taxable goods and exempt goods. In a month, total common input tax credit (not specifically attributable to either) is ₹90,000 on inputs. Aggregate turnover for the month is ₹50,00,000, of which exempt supplies are ₹10,00,000. Ignoring other restrictions and the rule on Rule 42 annual adjustments, what is the ITC reversal for the month for common credit (assume all common credit is on inputs and input services, none on capital goods, and no credit is blocked)?

The reversal is ₹18,000. Common credit of ₹90,000 is apportioned in the ratio of exempt turnover to total turnover, which is 10 lakh over 50 lakh, or 20%. Twenty percent of ₹90,000 is ₹18,000, leaving ₹72,000 as eligible credit for the month.

  1. A₹9,000
  2. B₹18,000Correct
  3. C₹72,000
  4. D₹90,000

Explanation

Under Rule 42, the credit attributable to exempt supplies (D1) is common credit multiplied by exempt turnover divided by total turnover: 90,000 × 10,00,000 / 50,00,000 = ₹18,000. The ITC admissible is ₹72,000. Option ₹72,000 confuses the eligible credit with the reversal.

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