Input credit of reverse charge paid for Exempted Supply

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This discussion clarifies whether Input Tax Credit (ITC) can be claimed on reverse charge payments when the main outward supply is exempted from tax. The general rule is that ITC is claimable if the goods or services purchased on a reverse charge basis are used for business purposes. This applies even if the reverse charge was paid at a 5% rate, provided the business use condition is met. However, ITC is not available if the outward supply is entirely exempted or if the purchased items are not used for business.

sachin Alwadhi

sachin Alwadhi (Querist)
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22 September 2020 Hi

Kindly guide can we claim an Itc for reverse charge paid specially when our main output/ supply exempted from tax.

CA Anita Bhadra

CA Anita Bhadra (Expert)
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23 September 2020 The input tax credit can be claimed by the buyer as long as they use the goods and services they bought on a reverse charge basis for business purposes only.

sachin Alwadhi

sachin Alwadhi (Querist)
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24 September 2020 Thanks for reply.Kindly guide further if we are paying GTA on reverse charge with 5% tax bracket then can we claim gst credit for same or not specially when our main supply exempted from tax.According to me we can take input credit of GTA in 12 % tax bracket only.Kindly guide

CA Anita Bhadra

CA Anita Bhadra (Expert)
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24 September 2020 GST rate 12% with GST and 5 % without GST is for GTA. The recipient can take credit even paid @ 5% subject to the condition that the service uses for business purposes only.
ITC is not available if outward supply is exempted or not used for business purpose

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sachin Alwadhi

sachin Alwadhi (Querist)
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24 September 2020 Thanks for the reply

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