Skip to content

CA Final · Indirect Tax Laws · Exemptions from GST

Ravi Exports, Surat, supplies goods to a customer in Mumbai. The goods are covered by an exemption notification that exempts them fully from tax, but Ravi mistakenly charges and collects IGST of Rs 90,000 on an invoice. Ravi also has Rs 1,50,000 of input tax credit on inputs used for these exempt goods. Which is correct?

The Rs 90,000 collected must be deposited with the Government because tax collected cannot be retained, and the Rs 1,50,000 input credit is not available because the inputs were used for wholly exempt supplies. Credit is allowed only for taxable or zero-rated supplies.

  1. AThe collected tax is retained since the buyer paid it voluntarily, and ITC is fully allowed
  2. BThe tax collected is still to be deposited with Government, and ITC on inputs used for exempt supplies is not allowedCorrect
  3. CThe tax collected need not be deposited but ITC is allowed proportionately
  4. DThe tax collected must be refunded to the buyer with no deposit, and ITC is allowed in full

Explanation

Tax collected by a registered person in any manner must be paid to the Government even when the supply is exempt, so the Rs 90,000 is to be deposited. Inputs used for exempt supplies do not qualify for ITC, which requires use for taxable or zero-rated supplies. The option allowing full ITC ignores this restriction.

Did you get it right without looking?

One question tells you little. A timed set on Exemptions from GST shows your real accuracy, how long you take and where you lose marks.

Practise Exemptions from GSTFree diagnostic mock

More Exemptions from GST questions