GST ITC REVERSE

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A kirana store owner selling both exempt rice and taxable goods is seeking clarification on whether they need to reverse Input Tax Credit (ITC) proportionately. They currently separate purchases and sales for exempt and taxable items and don't use common input services. However, the advice given is that proportionate ITC reversal is mandatory for any common business inputs or overheads, even if not explicitly tracked as 'input' for those specific expenses.

MITHUN verma

MITHUN verma (Querist)
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23 September 2026 Sir, I have a kirana store where I sell rice, which is exempt from GST, along with other taxable items. I also purchase exempt goods such as rice and make exempt sales from those purchases. At the same time, I purchase taxable goods and sell those taxable goods separately, charging GST as applicable.

In this situation, do I still need to reverse ITC proportionately on account of exempt sales?

Until now, I have not been making any proportionate ITC reversal because I purchase exempt goods separately and sell those exempt goods as exempt, while the taxable purchases are used for taxable sales and are reported separately in GST.

Please confirm whether my understanding is correct.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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23 September 2026 While inventory can be tracked separately, the understanding is incorrect if common input services or overheads (like rent, electricity, and software) are used for both types of sales. Under Section 17(2) and Rule 42 of the CGST Rules, proportionate ITC reversal is mandatory for all common business inputs and overheads.

MITHUN verma

MITHUN verma (Querist)
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23 September 2026 Sir we are not taking input on expenses like electricity, rent or software.

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