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A registered business uses the same inputs for both taxable and exempt supplies. How does section 17(2) of the CGST Act, 2017 treat the credit on those common inputs?

Question and options

A registered business uses the same inputs for both taxable and exempt supplies. How does section 17(2) of the CGST Act, 2017 treat the credit on those common inputs?

  1. Credit is restricted to the part attributable to taxable supplies, including zero-rated ones

  2. Full credit is allowed, with reversal only if exempt supplies exceed half of turnover

  3. Full credit is allowed, as the inputs are also used for taxable supplies

  4. No credit is allowed, as part of the inputs goes into exempt supplies

Answer and explanation

Correct answer: A - Credit is restricted to the part attributable to taxable supplies, including zero-rated ones

Section 17(2) of the CGST Act limits input tax credit on common inputs to the part attributable to taxable supplies, including zero-rated supplies, with the apportionment worked out under rules 42 and 43. Credit is therefore neither wholly allowed nor wholly denied, and the Act sets no turnover-share threshold for the reversal.

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