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CA Intermediate · Taxation · Input Tax Credit

Mehta Industries, a registered manufacturer, has an eligible ITC of Rs 50,000 on common inputs used for both taxable supplies and exempt supplies during a month. Aggregate turnover details for the month: taxable supplies Rs 12,00,000 and exempt supplies Rs 3,00,000 (total turnover Rs 15,00,000). Ignoring any other credits, what ITC can Mehta Industries claim on the common inputs?

Mehta Industries can claim Rs 40,000. The exempt supplies are one-fifth of total turnover, so one-fifth of the common credit, Rs 10,000, must be reversed under rule 42, leaving Rs 40,000 as eligible input tax credit.

  1. ARs 50,000
  2. BRs 40,000Correct
  3. CRs 10,000
  4. DRs 37,500

Explanation

Under rule 42, ITC attributable to exempt supplies is proportionate to the exempt turnover over total turnover. Exempt portion = 50,000 x 3,00,000/15,00,000 = Rs 10,000, which is reversed. Eligible ITC = 50,000 - 10,000 = Rs 40,000. Rs 10,000 is the reversal amount, not the claimable credit.

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