Rule 42 ITC reversal

[Sayali Jawle]

There is a proviso in rule 42 -

Provided further that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of E/F‘ shall be calculated by taking values of E‘ and F‘ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of E/F‘ is to be calculated.

In my case , suppose I raise Exempt Invoice annually say for eg. November 2021 and during that month exempt to total turnover ratio is 95%.

In other month during FY 2021-22 there is no exempt turnover but there is taxable turnover. So whether proviso to rule 42 will apply and for all months ITC to be reversed at 95% even when at annual level ratio comes at 60%?

AI Summary

Input tax credit reversal under allocation rule requires monthly computation with compulsory annual reconciliation and adjustment before due date.
Rule 42 requires monthly computation of input tax credit allocation for taxable and exempt supplies, using the exempt-to-total turnover ratio; if turnover is zero or information is unavailable for a period, the ratio from the last period with available turnover must be used. The monthly allocations are subject to a final annual reconciliation before the due date for the return for the month of September following the financial year-end, with excesses to be reversed or reclaimed through the prescribed returns or payment form.