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CA Intermediate · Taxation · Input Tax Credit

Rajan Enterprises is a registered dealer making both taxable supplies and exempt supplies. In a month, its common input tax credit (ITC) on inputs used for both is Rs 1,20,000. Turnover details: taxable supplies Rs 30,00,000 and exempt supplies Rs 10,00,000 (total aggregate turnover Rs 40,00,000). Ignoring any other reversal, what ITC is to be reversed for the exempt supplies under Rule 42, CGST Rules?

Rs 30,000 must be reversed. The common credit of Rs 1,20,000 is apportioned by the ratio of exempt turnover to total turnover, which is 10 lakh over 40 lakh or 25 percent, giving Rs 30,000 attributable to exempt supplies.

  1. ARs 90,000
  2. BRs 40,000
  3. CRs 30,000Correct
  4. DRs 1,20,000

Explanation

Common credit attributable to exempt supplies = Rs 1,20,000 x (exempt turnover 10,00,000 / total turnover 40,00,000) = Rs 1,20,000 x 25% = Rs 30,000. Rs 90,000 is the credit attributable to taxable supplies, a ratio taken with the wrong numerator. Rs 40,000 uses a one-third ratio of exempt to taxable turnover.

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