GST
Common credit split when you also have exempt sales
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Facts
Yes. Sec 17(2) and Rule 42 require ITC used for both taxable and exempt supplies to be split. The share related to exempt supplies is reversed monthly by formula and trued up at year end.
Provisions and law
- Sec 17(2), CGST Act 2017Credit used partly for exempt supplies must be split and the exempt share reversed
- Rule 42, CGST Rules 2017Method to reverse common ITC on inputs used for exempt supplies
Analysis
If your common credit is ₹1,00,000 and exempt turnover is 20 percent of total turnover, reverse ₹20,000. Credit used only for taxable sales stays fully available, and credit used only for exempt sales is fully reversed. Missing this is a frequent ground in scrutiny and audits.
Conclusion
- Classify credit as taxable-only, exempt-only or common
- Compute the exempt share of common credit each month
- Reverse it in GSTR-3B
- Do the annual true-up and adjust the difference
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