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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Input Tax Credit and Computation of GST Liability

Kaveri Traders, a registered person, buys goods with IGST of Rs 1,80,000 paid. The goods are used for effecting taxable supplies and also for exempt supplies. Under Section 17, how is the ITC treated?

Credit is restricted to the portion of input tax attributable to taxable supplies, including zero-rated supplies. Section 17(2) denies credit on inputs used for exempt supplies. Neither full credit nor a flat 50% applies to a trader using inputs for both kinds of supply.

  1. AThe whole Rs 1,80,000 is allowed because some supplies are taxable
  2. BThe whole Rs 1,80,000 is blocked because exempt supplies are made
  3. CCredit is restricted to the input tax attributable to taxable supplies including zero-rated suppliesCorrect
  4. DCredit is allowed at 50% of Rs 1,80,000 in all cases

Explanation

Section 17(2) restricts credit to so much of the input tax as is attributable to taxable supplies including zero-rated supplies. Tax attributable to exempt supplies cannot be taken. The 50% option applies only to banks and financial institutions, not to a trader.

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