Save Rs 499 on a 2-Year Ad-Free CAclubindia Pro Membership. Subscribe Now!

5 percent rule in sec42

Rules 294 views 4 replies

harsh

Business

105 Points Posted on 10 May 2018

In section 42 for tax reversal,

While calculating amount of tax reversal, govt says assume 5% of common credit is used for personal purpose and reverse that amount.

But in our case, we haven't used any common credit for perosnal use. If we calculate by 5%, the amount is going in lakhs.

Is it compulsory to reverse 5% as used for perosnal... Is there any way to save it or during audit they will check at invoice level and calculate that amount manually(few hundred rupees)....

Replies (4)

CA Shanky garg

Practicing Chartered Accountant

217 Points Posted on 10 May 2018

As per rule 42, 5% reversal is to be done. This reversal will be done in cases where the supply is for both personal & business purpose. Suppose there is some supply exclusively for ur business like on machinery etc., no reversal is required. For some supplies like car repair, telephone etc. it should be surely done.

CA Shanky garg

Practicing Chartered Accountant

217 Points Posted on 10 May 2018

Basically, it is to be calculated depending on the facts.

harsh

Business

105 Points Posted on 10 May 2018

Yes i am having that doubt only.. The Actual common credit for personal use is 0.001% and government wants to calculate 5%. That's the issue.. It it compulsory to reverse 5% on final audit for F.Y...??

harsh

Business

105 Points Posted on 10 May 2018

The process is remove 1)exclusively taxable input. 2) exclusively exempt input 3) exclusively personal Input.. what ever left now I called common credit. It's 5% additionally needs to reversed along with (exempt turnover/total turnover)