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CA Final · Indirect Tax Laws · Exemptions from GST

Manoj Traders supplies both taxable goods and wholly exempt goods. For a month, total ITC is ₹5,00,000, of which ₹50,000 is blocked credit, ₹1,00,000 relates exclusively to exempt supplies and ₹2,00,000 relates exclusively to taxable supplies. The remainder is common credit. Exempt turnover is ₹25 lakh and total turnover is ₹1 crore. Ignoring interest, what total ITC must be reversed for exempt supplies (excluding the blocked credit)?

The reversal is ₹1,37,500. Common credit is ₹1,50,000 after removing blocked, exempt-only and taxable-only credits. Of this, 25 percent, being exempt turnover over total turnover, is ₹37,500. Adding the ₹1,00,000 credit used exclusively for exempt supplies gives the total.

  1. A₹37,500
  2. B₹1,37,500Correct
  3. C₹1,50,000
  4. D₹2,12,500

Explanation

Common credit = 5,00,000 − 50,000 − 1,00,000 − 2,00,000 = ₹1,50,000. Reversal on common credit = 1,50,000 × 25/100 = ₹37,500. Adding the credit exclusively for exempt supplies of ₹1,00,000 gives ₹1,37,500. Option ₹37,500 omits the exclusive exempt credit.

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