As the due date for filing GST returns for the month of September draws nearer, one should keep in mind the various points relating to FY 2018-19 for which the due date of filing the return for September is the last date. While availing any input tax credit relating to FY 2018-19 not claimed yet and reconciling the GST returns vis-à-vis the books of accounts seems most imperative, many seem to overlook the fact that ITC reversal for the FY 2018-19 in case the supplier is utilizing common credit for providing taxable and exempted services also needs to be finalized upto the same date.

As per the provisions of Section 17 of the CGST Act, 2017 (‘Act’), a supplier utilizing goods and services on which ITC has been availed for the purpose of providing both taxable and exempted supplies has to reverse certain portion of input tax credit. This common credit has to be reversed in the proportion which exempted turnover bears to the total turnover.

For the purpose of calculation of exempted turnover, the definition of exempted supply as per the provisions of Section 2 of the Act must be referred. The same is given below:

(47)  “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

Further non-taxable supply is defined as follows:

(78)  “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;

A perusal of the above may give an interpretation that all transactions which are not chargeable to tax under the Act may be included in the calculation for exempted turnover. This might be true for most of the cases but not all. Certain transactions have been specifically held to be included or not to be included in the calculation for exempted turnover. The list of the same is given below:

Inclusions

  • Value of land sold– The value of land shall be taken as the value adopted for the purpose of paying stamp duty;
  • Value of building sold where the entire consideration is received after obtaining the completion certificate: The value of building sold shall be taken as the value adopted for paying stamp duty;
  • Value of securities sold: While securities are held as neither goods nor services, the value of securities sold is included for the purpose of calculating the exempted turnover. The value of securities sold shall be taken as 1% of the sale value of the securities sold by the registered person;
  • Value of supplies on which the recipient is liable to pay tax: The value of supplies provided by a registered taxable person on which the recipient is liable to pay tax shall be included in the value of exempted turnover for the supplier;

Exclusions

  • Activities specified in Schedule III of the Act other than sale of land and building: The activities that are held to be neither supply of goods or services under Schedule III like services performed in the course of employment; services provided by courts or tribunals; activities performed by Members of Parliament, Members of State Legislatures, etc; high seas sale, actionable claims other than lottery, betting and gambling services of funeral, burial etc,
  • Interest, Discount: The value of consideration received in the form of interest or discount on deposits, extending loans or advances shall not be included in the calculation for exempted turnover except in case of a banking company or a financial institution including NBFC engaged in the business of supplying services by way of accepting deposits and extending loans or advances;
  • The value of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.

Conclusion

It can be seen from the above that the specific exclusions and inclusions must be kept in mind while calculating the exempted turnover and interpreting the term ‘exempted turnover’ as per common parlance may not give results in accordance with the provisions of the Act.

(The author is a practicing Chartered Accountant based in Delhi and can be reached at nitingoel6231@gmail.com or 9811933762)

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied without express written permission of the author.

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