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CA Intermediate · Taxation · Input Tax Credit

Sharma Enterprises, a registered person, supplies both taxable goods and exempt goods. In a month, its total ITC on common inputs, used for both, is Rs 1,00,000. Turnover details for the month: taxable supplies Rs 18,00,000, exempt supplies Rs 2,00,000, and the total turnover is Rs 20,00,000. Ignoring blocked credits and any other ITC, what is the ITC attributable to exempt supplies that must be reversed on a proportionate basis?

The reversal is Rs 10,000. Common credit used for taxable and exempt supplies must be apportioned by the ratio of exempt turnover to total turnover. Here that ratio is 2 lakh to 20 lakh, or 10%, applied to Rs 1,00,000 of common ITC. The remaining Rs 90,000 is eligible.

  1. ARs 10,000Correct
  2. BRs 90,000
  3. CRs 20,000
  4. DRs 1,00,000

Explanation

Under the CGST Rules, ITC attributable to exempt supplies is the common credit multiplied by exempt turnover over total turnover. That is 1,00,000 × 2,00,000 / 20,00,000 = Rs 10,000. Rs 90,000 is the eligible credit, not the reversal, so it is the wrong figure to select.

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