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Input tax claiming if half of the service are taxable and half are taxfree

23 June 2020

Sir we are engaged in a transportation business where we supply both transport facility and handling and storage facility also in which transport are on rcm basis and others are taxable under gat @ 18 % . I have purchased a new truck and the truck is used in providing both of the services so should i claim input tax credit full available in tax invoice of truck or i have to distribute input in propionate according to my services

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3 Replies

CA Sunil Kumar (Chartered Accountant) (4514 Points)
Replied 23 June 2020

Following example will clear your doubt.
A company operating in Karnataka had availed the following ITC on various capital goods purchased in the month of July, 2019:

ITC on Machine A (used exclusively in supply of exempt goods): Rs. 1,50,000

ITC on Machine B (used exclusively in supply of taxable goods): Rs. 9,00,000

ITC on Machine C (used exclusively for non-business purposes): Rs. 20,000

ITC on Machine D (used partly in supply of taxable and exempt goods): 4,50,000

The company had also made the following type of output supplies in Karnataka in the month of July:

Turnover in relation to exempt supplies: Rs. 20,00,000

Turnover in relation to taxable supplies: Rs. 80,00,000

Solution:

ITC on machine A and C will not be credited to the electronic credit ledger (1,50,000+20,000 = 1,70,000).

ITC on machine B will be credited to the electronic ledger: Rs. 9,00,000

ITC on machine D will also be credited to the electronic credit ledger: Tc = 4,50,000

Tm = Tc ÷ 60 = 7,500 which is also Tr in this case.

The amount of ITC to be reversed for the month of July, 2019 would be:

= (E ÷ F) × Tr

= (20,00,000 ÷ 80,00,000) × 7,500 = 1,875

Thus total ITC credited to electronic ledger for the month of July, 2019 = Rs. 10,70,000 and

Total ITC reversed for the month of July, 2019 = Rs. 1,875
The useful life of the capital goods have been taken as 5 years, but our filing period relates to the supplies made/received in a particular month, so we will first find the ITC attributable to a month by dividing the credit by 60.