Taxation - GST Ch 07: Itc - Test 2: answer key

Question 1 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. Vikramaditya Tech Labs LLP, a monthly return filer registered in Delhi, manufactures industrial sensors for taxable domestic supplies. On 1 April 2026, it received a tax invoice from Radian Components for control units having taxable value of ₹8,00,000 and GST of ₹1,44,000. The invoice was reported in the supplier’s GSTR-1, appeared in VTL’s GSTR-2B and was included in VTL’s April GSTR-3B. The total amount payable, including GST, was ₹9,44,000. By 28 September 2026, VTL had remitted ₹6,60,800 to Radian; the balance remained unpaid. No credit note or price adjustment was involved. On 10 May 2026, VTL received another invoice from Mehta Industrial Systems for equipment spares, taxable value ₹3,00,000 and GST ₹54,000. The invoice was reported and credit was claimed in May. The entire amount of ₹3,54,000 remained unpaid on 6 November 2026, the 180th day from invoice issue. VTL reversed the credit in its December 2026 GSTR-3B, filed on 20 January 2027. It paid Mehta the whole invoice amount on 12 February 2027 and now proposes to re-avail the earlier reversal. VTL also procured consulting support from a registered service provider for ₹2,00,000 plus GST of ₹36,000, payable by VTL under reverse charge. VTL discharged the reverse-charge tax but did not pay the consultant’s fee for 230 days. Separately, VTL transferred business inputs worth ₹1,50,000 to its registered branch in another State without consideration; the transfer was treated as a Schedule I supply, and GST of ₹27,000 was charged. VTL received the goods and claimed the related credit. All supplies were used in taxable business.

For the Radian Components invoice, VTL paid ₹6,60,800 out of the total invoice value of ₹9,44,000 within 180 days. The corresponding ITC of ₹1,44,000 had already been availed. Determine the amount of ITC required to be reversed after expiry of 180 days, assuming the remaining consideration continues unpaid and no statutory exception applies.

1. ₹43,200, being 30% of the ITC attributable to the unpaid consideration. (correct answer)
2. ₹1,00,800, being 70% of the original input tax credit availed.
3. ₹1,44,000, representing the entire credit on the original invoice.
4. Nil, since a substantial portion of the invoice amount was paid.

Answer: A — ₹43,200, being 30% of the ITC attributable to the unpaid consideration.

Explanation. Total invoice value = ₹8,00,000 + ₹1,44,000 = ₹9,44,000. Amount paid = ₹6,60,800, representing 70% of the invoice value. Unpaid proportion = full − 70% = 30%. Under Rule 37(1), reversal is proportionate to the unpaid amount. Therefore, ITC reversal = ₹1,44,000 × 30% = ₹43,200. The balance credit of ₹1,00,800 does not require reversal because the corresponding consideration and tax have been paid within 180 days.

Where it goes wrong. Reversing the entire ITC merely because some consideration remains unpaid, instead of applying the proportionate reversal mechanism.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 2 · 2 marks · Taxation - GST Ch 07: Itc · hard

Mehta Industrial Systems issued its invoice on 10 May 2026. VTL availed the associated ITC but made no payment towards the invoice within 180 days. Determine the relevant expiry date and the GSTR-3B tax period in which VTL must reverse the credit. VTL is a monthly return filer, and assume the applicable due date for the December 2026 GSTR-3B is 20 January 2027.

1. 180 days expire on 31 October 2026; reversal is due in November 2026.
2. 180 days expire on 10 November 2026; reversal is due in November 2026.
3. 180 days expire on 6 November 2026; reversal is due in December 2026. (correct answer)
4. 180 days expire on 10 December 2026; reversal is due in January 2027.

Answer: C — 180 days expire on 6 November 2026; reversal is due in December 2026.

Explanation. Invoice date = 10 May 2026. Adding 180 days gives 6 November 2026 as the expiry date. The 180-day period therefore falls in November 2026. Rule 37(1) requires reversal while furnishing GSTR-3B for the tax period immediately following the period in which the 180-day period expires. Accordingly, the relevant return is December 2026 GSTR-3B, ordinarily due on 20 January 2027. The reversal amount is the full ITC of ₹54,000 because no consideration was paid.

Where it goes wrong. Furnishing the reversal in the same tax period in which the 180th day falls, instead of the immediately following tax period.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 3 · 2 marks · Taxation - GST Ch 07: Itc · hard

VTL reversed the entire ₹54,000 ITC relating to Mehta’s invoice in its December 2026 GSTR-3B. On 12 February 2027, VTL paid the entire invoice consideration, including GST, to Mehta. VTL proposes to re-avail the previously reversed credit in its February 2027 return. Which treatment is permissible under the applicable provisions?

1. The credit remains permanently unavailable because the original 180-day period expired.
2. The entire ₹54,000 can be re-availed after payment to the supplier. (correct answer)
3. Only ₹27,000 can be re-availed because the original reversal was complete.
4. The credit can be re-availed only after the supplier issues a fresh invoice.

Answer: B — The entire ₹54,000 can be re-availed after payment to the supplier.

Explanation. Rule 37(2) expressly permits re-availment where the recipient subsequently pays the supplier the amount towards the value of supply along with the applicable tax. VTL paid the entire invoice amount on 12 February 2027, after reversing ₹54,000 in the December return. Accordingly, the previously reversed credit becomes available again. Re-availment = ₹54,000 × full = ₹54,000. No fresh invoice is necessary merely because the credit was earlier reversed under the 180-day payment provision.

Where it goes wrong. Treating expiry of the original 180-day period as permanent forfeiture, despite subsequent payment and statutory entitlement to re-availment.

Authority. Section 16(2), second and third provisos, of the CGST Act, 2017; Rule 37(2) of the CGST Rules, 2017

Question 4 · 2 marks · Taxation - GST Ch 07: Itc · medium

VTL has two outstanding transactions: consulting services on which tax is payable under reverse charge, and an inter-State transfer of business inputs to its distinct registered branch without consideration under Schedule I. The respective ITC amounts are ₹36,000 and ₹27,000. Neither transaction involves payment to a supplier within 180 days. Determine the aggregate credit reversal attributable solely to failure to make payment within 180 days.

1. ₹63,000, because both transactions remain unpaid beyond 180 days.
2. ₹27,000, because only the reverse-charge transaction is exempt.
3. ₹36,000, because only the Schedule I transaction is deemed paid.
4. Nil, because reverse charge is excluded and Schedule I value is deemed paid. (correct answer)

Answer: D — Nil, because reverse charge is excluded and Schedule I value is deemed paid.

Explanation. The 180-day condition does not apply to supplies on which tax is payable under reverse charge. Therefore, the ₹36,000 credit does not require reversal on account of delayed payment to the service provider. Further, Rule 37(1) deems the value of Schedule I supplies made without consideration to have been paid. Hence, the ₹27,000 credit also does not require reversal on this ground. Aggregate reversal = ₹0 + ₹0 = Nil.

Where it goes wrong. Applying the 180-day payment rule universally without considering reverse-charge exclusion and deemed payment under Schedule I.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 5 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. Aryan Steels Ltd., a registered manufacturer in Maharashtra, acquired three machines used exclusively in its taxable steel-processing operations. On 14 May 2025, it purchased a CNC press for ₹15,00,000 plus GST of ₹2,70,000. The company capitalised the full amount of ₹17,70,000 in its books and, in its income-tax return for AY 2026-27 furnished on 20 September 2026, claimed depreciation on the tax-inclusive cost. It had earlier taken ITC of ₹2,70,000 in its May 2025 GSTR-3B. On 20 November 2025, Aryan acquired a robotic arm for ₹8,00,000 plus GST of ₹1,44,000. It recorded the base cost as the depreciable asset cost and accounted separately for the GST recoverable. In the return for AY 2026-27, depreciation was claimed only on ₹8,00,000; no depreciation was claimed on the GST component. The invoice was otherwise eligible and credit of ₹1,44,000 was taken in November 2025. On 3 April 2026, Aryan purchased a packaging line for ₹10,00,000 plus GST of ₹1,80,000. Its financial books initially recorded the gross purchase amount, but its income-tax computation excluded the GST from the depreciable amount and claimed depreciation only on the base price. The packaging line was installed and used in taxable manufacturing. The related invoice and tax amount were recorded in the appropriate return period. The finance controller argues that every machine is a business capital asset and the tax was paid to suppliers; therefore, all three credits should remain. The tax manager points out that section 16(3) focuses on whether depreciation is claimed on the tax component under the Income-tax Act, not merely on whether the asset is capitalised in financial accounts. Assume all other ITC conditions are met and no restriction under another section applies.

Aryan Steels Ltd wants to determine the aggregate ITC permissible on its three machines after considering its income-tax depreciation treatment. The CNC press carries GST of ₹2,70,000, the robotic arm carries GST of ₹1,44,000 and the packaging line carries GST of ₹1,80,000. Depreciation was claimed on the tax component only for the CNC press. Calculate the aggregate ITC allowable on the three assets.

1. ₹2,70,000, comprising only the robotic arm and no packaging line credit.
2. ₹3,24,000, comprising the robotic arm and packaging line tax components. (correct answer)
3. ₹4,05,000, comprising the CNC press and packaging line tax components.
4. ₹5,94,000, comprising the full GST charged on all three machines.

Answer: B — ₹3,24,000, comprising the robotic arm and packaging line tax components.

Explanation. Section 16(3) disallows ITC on the tax component where depreciation has been claimed on that component under the Income-tax Act. CNC press: ₹2,70,000 is disallowed. Robotic arm: GST of ₹1,44,000 is not included in its depreciable amount, so credit is available. Packaging line: GST of ₹1,80,000 is excluded from depreciation, so credit is available. Total eligible ITC = ₹1,44,000 + ₹1,80,000 = ₹3,24,000.

Where it goes wrong. Disallowing ITC merely because an asset is capitalised, rather than examining whether depreciation was actually claimed on its tax component.

Authority. Section 16(3) of the CGST Act, 2017

Question 6 · 2 marks · Taxation - GST Ch 07: Itc · hard

Aryan had already availed ITC of ₹2,70,000 on the CNC press in its May 2025 GSTR-3B. In September 2026, its income-tax return for AY 2026-27 was furnished claiming depreciation on the entire tax-inclusive cost of the press. The machinery is used exclusively for taxable manufacturing, and the supplier has paid the GST. What is the ITC position concerning the CNC press?

1. The entire ₹2,70,000 remains eligible because the original GSTR-3B preceded the income-tax return.
2. Only ₹1,35,000 is disallowed because depreciation was claimed for one financial year.
3. The ₹2,70,000 remains eligible since the machinery has taxable business use.
4. The entire ₹2,70,000 tax component is ineligible under section 16(3). (correct answer)

Answer: D — The entire ₹2,70,000 tax component is ineligible under section 16(3).

Explanation. Section 16(3) prohibits ITC on the tax component of capital goods where depreciation has been claimed on that tax component under the Income-tax Act. The CNC press cost includes base value ₹15,00,000 and GST ₹2,70,000. Since depreciation was claimed on the tax-inclusive amount, the entire GST component is ineligible. Disallowed ITC = ₹2,70,000 × full = ₹2,70,000. Taxable business use and supplier tax payment do not override this specific prohibition.

Where it goes wrong. Assuming that an earlier GST claim remains valid merely because the income-tax depreciation claim was made in a later return.

Authority. Section 16(3) of the CGST Act, 2017

Question 7 · 2 marks · Taxation - GST Ch 07: Itc · hard

The packaging line was initially recorded at its gross invoice amount in Aryan’s financial books, including GST of ₹1,80,000. However, its income-tax computation treated only the base purchase price of ₹10,00,000 as the depreciable cost, while the GST was separately recognised as recoverable. Can Aryan claim ITC of ₹1,80,000 merely because its financial accounts initially included GST in the asset cost?

1. Yes, because section 16(3) examines depreciation under the Income-tax Act, not merely book capitalisation. (correct answer)
2. No, because capitalisation of the gross cost in any financial statement bars ITC.
3. No, because ITC on capital goods is prohibited whenever depreciation is available.
4. Yes, but only half the GST can be claimed after the first depreciation charge.

Answer: A — Yes, because section 16(3) examines depreciation under the Income-tax Act, not merely book capitalisation.

Explanation. Section 16(3) refers specifically to depreciation claimed on the tax component under the Income-tax Act, 1961. The initial accounting treatment in financial books is not, by itself, the statutory test. Aryan’s income-tax computation excludes GST of ₹1,80,000 from the depreciable amount and claims depreciation only on the base value of ₹10,00,000. Thus, the section 16(3) bar does not arise. Eligible ITC = ₹1,80,000, subject to other conditions.

Where it goes wrong. Confusing book capitalisation with the income-tax depreciation claim on the GST component.

Authority. Section 16(3) of the CGST Act, 2017

Question 8 · 2 marks · Taxation - GST Ch 07: Itc · medium

Assume Aryan’s management decides to claim depreciation on the GST components of both the CNC press and packaging line in its income-tax records, while retaining the depreciation treatment already adopted for the robotic arm. The three invoices carry GST of ₹2,70,000, ₹1,44,000 and ₹1,80,000 respectively. What is the aggregate ITC that cannot be claimed on account of section 16(3)?

1. ₹1,44,000, representing only the GST on the robotic arm.
2. ₹3,24,000, representing the GST on the robotic arm and packaging line.
3. ₹4,50,000, representing the CNC press and packaging line tax components. (correct answer)
4. ₹5,94,000, representing the complete GST on all three machines.

Answer: C — ₹4,50,000, representing the CNC press and packaging line tax components.

Explanation. Where depreciation is claimed on the tax component, section 16(3) bars ITC on that component. CNC press: ₹2,70,000 disallowed. Packaging line: ₹1,80,000 disallowed under the revised assumption. Robotic arm: ₹1,44,000 remains eligible because its GST component is not depreciated. Aggregate disallowed ITC = ₹2,70,000 + ₹1,80,000 = ₹4,50,000. The restriction is asset-specific and does not automatically extend to other assets.

Where it goes wrong. Treating depreciation on one capital asset as affecting all capital goods, or overlooking the separate tax treatment of each asset.

Authority. Section 16(3) of the CGST Act, 2017

Question 9 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. Nandini Real Estates Pvt Ltd, registered in Karnataka, receives taxable business services and leases commercial equipment. It is reconciling old invoices and debit notes before filing returns in October 2026. A supplier issued an invoice dated 14 August 2025 for maintenance services, carrying GST of ₹1,44,000. Nandini received the services and had the invoice in its records but omitted the ITC from earlier GSTR-3B returns. Its annual return for FY 2025-26 was furnished on 12 October 2026. Nandini proposes to include the ₹1,44,000 credit in its GSTR-3B for October, which it intends to file on 20 November 2026. A second invoice dated 10 February 2026, for equipment maintenance and GST of ₹72,000, also pertains to FY 2025-26. Nandini received the services, has the invoice and has the required supplier reporting. It had not claimed the credit before furnishing its annual return for FY 2025-26 on 28 October 2026. It now proposes a claim in the October 2026 GSTR-3B. On 15 June 2026, a supplier issued Nandini a debit note for additional installation services, carrying GST of ₹54,000. The debit note relates to an original invoice dated 12 March 2025. The debit note was issued, reported and communicated in FY 2026-27; Nandini received the services and has not yet furnished the annual return for FY 2026-27. Finally, Nandini had earlier reversed ITC of ₹45,000 under Rule 37 because payment to a vendor was not made within 180 days of an invoice issued in FY 2024-25. The invoice credit had initially been claimed and the reversal was duly made. Nandini paid the vendor the outstanding value and tax on 12 December 2026, after the ordinary Section 16(4) deadline for that original invoice. It seeks to re-avail the reversed credit in a later GSTR-3B.

Nandini Real Estates Pvt Ltd intends to claim ITC of ₹1,44,000 on an invoice dated 14 August 2025. Although the invoice is otherwise eligible, the company did not claim the credit in any earlier GSTR-3B. Its annual return for FY 2025-26 was furnished on 12 October 2026. Nandini proposes to claim the amount in its October 2026 GSTR-3B, which will be filed on 20 November 2026. Determine the permissible ITC.

1. ₹1,44,000, since the statutory date is 30 November 2026.
2. ₹72,000, since only half the credit survives annual return filing.
3. ₹1,44,000, because the invoice was issued before the financial year ended.
4. Nil, since the annual return was furnished before the proposed claim. (correct answer)

Answer: D — Nil, since the annual return was furnished before the proposed claim.

Explanation. The invoice pertains to FY 2025-26. The ordinary deadline under section 16(4) would be 30 November 2026. However, the provision specifies the earlier of this date and the date of furnishing the relevant annual return. Nandini furnished its annual return on 12 October 2026. Therefore, the applicable deadline became 12 October 2026. The proposed claim on 20 November is after that date. Eligible ITC through the proposed claim = ₹0.

Where it goes wrong. Applying 30 November automatically without comparing it with the actual date on which the relevant annual return was furnished.

Authority. Section 16(4) of the CGST Act, 2017

Question 10 · 2 marks · Taxation - GST Ch 07: Itc · hard

Nandini received a debit note dated 15 June 2026 for installation services, carrying GST of ₹54,000. The underlying original invoice was issued on 12 March 2025. Assume the relevant annual return for FY 2026-27 will be furnished after 30 November 2027. For deciding the Section 16(4) time limit, which financial year governs this debit note?

1. FY 2026-27, with the claim available up to 30 November 2027. (correct answer)
2. FY 2024-25, with the claim available up to 30 November 2025.
3. FY 2025-26, with the claim available up to 30 November 2026.
4. FY 2024-25, with the claim available up to 30 November 2027.

Answer: A — FY 2026-27, with the claim available up to 30 November 2027.

Explanation. For a debit note, the relevant financial year for section 16(4) is determined by the date of issuance of the debit note, not the date of the original invoice. The debit note is dated 15 June 2026 and therefore pertains to FY 2026-27. Its ordinary deadline is 30 November following that financial year, namely 30 November 2027. Since the annual return is assumed to be furnished later, the applicable deadline is 30 November 2027.

Where it goes wrong. Using the original invoice date instead of the debit note issuance date to determine the relevant financial year.

Authority. Section 16(4) of the CGST Act, 2017; Circular No. 160/16/2021-GST dated 20.09.2021

Question 11 · 2 marks · Taxation - GST Ch 07: Itc · hard

Nandini had reversed ITC of ₹45,000 under Rule 37 on an invoice pertaining to FY 2024-25. The ordinary Section 16(4) deadline for that invoice has already expired. On 12 December 2026, Nandini paid the entire outstanding value and tax to the supplier. It now proposes to re-avail the earlier reversed credit through a subsequent GSTR-3B. Is re-availment barred merely because the original Section 16(4) deadline has expired?

1. Yes, all credit claims become permanently time-barred after the ordinary Section 16(4) deadline.
2. No, the earlier reversed credit may be re-availed under Rule 37(2) and (4). (correct answer)
3. Yes, unless the supplier issues a fresh debit note for the original supply.
4. No, but only 50% of the reversed amount can be re-availed.

Answer: B — No, the earlier reversed credit may be re-availed under Rule 37(2) and (4).

Explanation. Rule 37(2) permits re-availment when the recipient subsequently pays the supplier the value of supply along with tax. Further, Rule 37(4) expressly provides that the Section 16(4) time limit does not apply to a claim for re-availing credit that had previously been reversed. Nandini has paid the outstanding amount on 12 December 2026. Therefore, the previously reversed amount of ₹45,000 may be re-availed in a subsequent return.

Where it goes wrong. Treating re-availment of previously reversed credit as a fresh original ITC claim subject to the normal Section 16(4) deadline.

Authority. Section 16(4) of the CGST Act, 2017; Rule 37(2) and (4) of the CGST Rules, 2017

Question 12 · 2 marks · Taxation - GST Ch 07: Itc · medium

Nandini has an invoice dated 10 February 2026 for maintenance services carrying GST of ₹72,000. The services were received and supplier reporting was completed. Nandini did not claim the credit before furnishing its FY 2025-26 annual return on 28 October 2026. Its October GSTR-3B is scheduled to be filed on 20 November 2026. What is the ITC that can now be claimed on this invoice?

1. ₹72,000, because the ordinary statutory date is 30 November 2026.
2. ₹36,000, because the annual return was furnished during the succeeding financial year.
3. Nil, because the annual return date of 28 October is earlier than 30 November. (correct answer)
4. ₹72,000, because the October GSTR-3B was prepared before 30 November.

Answer: C — Nil, because the annual return date of 28 October is earlier than 30 November.

Explanation. The invoice pertains to FY 2025-26. The applicable Section 16(4) deadline is the earlier of 30 November 2026 and the date of furnishing the relevant annual return. Nandini furnished its annual return on 28 October 2026, which is earlier. Since the proposed GSTR-3B filing occurs on 20 November 2026, the credit is being claimed after the applicable deadline. Therefore, ITC available through this proposed claim is Nil.

Where it goes wrong. Considering only the date of furnishing GSTR-3B and ignoring the earlier annual-return-based restriction.

Authority. Section 16(4) of the CGST Act, 2017

Question 13 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Smt. Anuradha Sen, a registered manufacturer, availed ITC of ₹86,400 on a tax invoice dated 12 June 2026. The supplier was paid nothing towards the invoice value or GST during the prescribed 180-day period. Anuradha files monthly GSTR-3B returns and the corresponding October-to-December invoices are otherwise eligible. Calculate the relevant date on which the 180-day period expires and identify the return period in which the reversal must be made.

1. Expiry on 9 December 2026; reversal in January 2027 GSTR-3B. (correct answer)
2. Expiry on 12 December 2026; reversal in December 2026 GSTR-3B.
3. Expiry on 30 November 2026; reversal in December 2026 GSTR-3B.
4. Expiry on 9 January 2027; reversal in February 2027 GSTR-3B.

Answer: A — Expiry on 9 December 2026; reversal in January 2027 GSTR-3B.

Explanation. Invoice date = 12 June 2026. The 180-day period expires on 9 December 2026. This date falls in December 2026. Under Rule 37(1), reversal must be made in the GSTR-3B for the immediately following tax period, namely January 2027. Since no payment was made, full ITC is reversible. Reversal principal = ₹86,400 × full = ₹86,400, together with applicable interest under section 50.

Where it goes wrong. Choosing the December return because the 180th day falls in December, rather than selecting the immediately following tax period.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 14 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Steels Ltd received an invoice dated 1 May 2026 carrying GST of ₹1,80,000. It availed the entire ITC and paid 75% of the invoice value along with the corresponding tax within 180 days. The remaining 25% remained unpaid after expiry of the statutory period. The inward supply was not under reverse charge and was otherwise eligible. What amount must Aryan reverse under Rule 37(1)?

1. ₹1,80,000, because the supplier was not paid in full.
2. ₹45,000, being 25% of the original ITC availed. (correct answer)
3. ₹1,35,000, being the proportion relating to payment already made.
4. Nil, because payment of at least 75% is sufficient.

Answer: B — ₹45,000, being 25% of the original ITC availed.

Explanation. The unpaid proportion is 25%, because 75% of the invoice value together with tax has been paid within 180 days. Rule 37(1) requires reversal proportionate to the unpaid amount. Therefore, reversal = ₹1,80,000 × 25% = ₹45,000. The remaining ₹1,35,000 represents credit attributable to the paid portion. Since the 180-day period expired on 28 October 2026, reversal is required in the immediately following tax period.

Where it goes wrong. Reversing the full credit merely because the invoice is not entirely paid, instead of applying the unpaid proportion.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 15 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered recipient availed ITC of ₹48,000 on a taxable inward supply. Following the 180-day payment failure, the proportionate amount requiring reversal was determined at ₹12,000. Assume this ₹12,000 had been utilised from 1 October 2026 and remained utilised until reversal on 20 November 2026. For this question, use 50 days, an annual interest rate of 18%, and a 365-day year. Calculate the interest attributable to the utilised amount.

1. ₹1,200, calculated on the entire ITC at 18% for 50 days.
2. ₹600, calculated on half the reversal amount at 18% for 50 days.
3. ₹296, calculated on ₹12,000 at 18% for 50 days. (correct answer)
4. ₹148, calculated on ₹6,000 at 18% for 50 days.

Answer: C — ₹296, calculated on ₹12,000 at 18% for 50 days.

Explanation. The amount requiring reversal is ₹12,000, not the entire original ITC of ₹48,000. The question specifies that this amount remained utilised for 50 days. Interest = Principal × Rate × Period ÷ 365. Substituting the figures: ₹12,000 × 18% × 50 ÷ 365 = ₹295.89, rounded to ₹296. Rule 88B(3) provides the utilisation-based interest calculation for wrongly availed and utilised ITC, applying the notified rate under section 50(3).

Where it goes wrong. Calculating interest on the entire original credit instead of the proportionate amount requiring reversal, or overlooking the period of utilisation.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Section 50(3) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017; Rule 88B(3) of the CGST Rules, 2017; Notification No. 13/2017-Central Tax dated 28.06.2017

Question 16 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered company receives legal consultancy services for its taxable business from an advocate. GST of ₹45,000 is payable by the company under reverse charge. The company issues the prescribed invoice, pays the tax to the Government and claims ITC. It pays the advocate’s professional fee only after 220 days from the invoice date. The company wants to know whether the delayed professional-fee payment requires reversal under the second proviso to section 16(2).

1. The full ₹45,000 must be reversed because the professional fee was unpaid beyond 180 days.
2. Half the credit must be reversed because the fee payment was delayed by 40 days.
3. The ₹45,000 credit can be retained only after the advocate receives the professional fee.
4. The 180-day rule excludes reverse-charge supplies, subject to payment of reverse-charge tax. (correct answer)

Answer: D — The 180-day rule excludes reverse-charge supplies, subject to payment of reverse-charge tax.

Explanation. The second proviso to section 16(2) expressly excludes supplies on which tax is payable under reverse charge from the 180-day payment condition. Accordingly, delayed payment of the advocate’s professional fee does not require reversal under this provision. The recipient must nevertheless satisfy the tax-payment requirement. Here, reverse-charge GST of ₹45,000 has been paid to the Government. The credit is therefore not liable to reversal solely because the professional fee was paid after 180 days.

Where it goes wrong. Confusing the general vendor-payment requirement with the separate treatment prescribed for reverse-charge supplies.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 17 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A company transfers machinery components worth ₹3,00,000 from its Maharashtra registration to its Gujarat registration without consideration. Both registrations belong to the same legal entity and are treated as distinct persons under GST. The transfer is a Schedule I supply, and the receiving registration avails the applicable ITC of ₹54,000. No monetary amount is paid between the registrations within 180 days. What is the effect of Rule 37 on this credit?

1. The value is deemed paid under Rule 37, so no reversal arises for this reason. (correct answer)
2. The full ₹54,000 must be reversed because no consideration was transferred.
3. Only ₹27,000 must be reversed because the supply was made between distinct persons.
4. The credit must be reversed after 180 days and re-availed after an internal payment.

Answer: A — The value is deemed paid under Rule 37, so no reversal arises for this reason.

Explanation. A supply between distinct registrations can constitute a Schedule I supply even without consideration. Rule 37(1) specifically deems the value of supplies made without consideration under Schedule I to have been paid for purposes of the 180-day condition. Thus, the absence of monetary payment between the registrations does not trigger reversal. The receiving registration's credit of ₹54,000 is not required to be reversed under Rule 37 solely on this ground, assuming all other ITC conditions are met.

Where it goes wrong. Treating the absence of an actual cash transfer between distinct registrations as an automatic trigger for reversal.

Authority. Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017; Schedule I of the CGST Act, 2017

Question 18 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A supplier’s invoice includes an additional ₹80,000 representing an insurance liability that originally rested with the supplier but was incurred and discharged by the recipient. This amount is included in the taxable value under section 15(2)(b). The recipient has availed the related ITC, but no separate reimbursement was made to the supplier within 180 days for this component. How does the special proviso to Rule 37 treat this amount?

1. It is treated as unpaid and requires proportionate reversal of the related credit.
2. It is deemed to have been paid for applying the 180-day condition. (correct answer)
3. It attracts reversal only if the supplier issues a separate debit note.
4. It becomes exempt from GST because the recipient incurred the liability.

Answer: B — It is deemed to have been paid for applying the 180-day condition.

Explanation. Section 15(2)(b) includes amounts that the supplier is liable to incur in relation to the supply but which are incurred by the recipient and not included in the price. Rule 37(1) provides that an amount added under section 15(2)(b) is deemed to have been paid for purposes of the 180-day condition. Accordingly, the ₹80,000 component is treated as paid for this purpose. No separate reversal arises merely because the recipient did not reimburse that component.

Where it goes wrong. Ignoring the special deemed-payment proviso for amounts included in value under section 15(2)(b).

Authority. Section 15(2)(b) of the CGST Act, 2017; Second proviso to Section 16(2) of the CGST Act, 2017; Rule 37(1) of the CGST Rules, 2017

Question 19 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Nandini Real Estates purchases production equipment for ₹30,00,000 plus GST of ₹5,40,000. It capitalises the gross cost and claims depreciation under the Income-tax Act on the complete amount, including the ₹5,40,000 tax component. The equipment is exclusively used for making taxable supplies. Nandini has paid the supplier and otherwise satisfies the general conditions for ITC. Determine the credit available under section 16(3).

1. ₹5,40,000, because the machine is exclusively used for taxable supplies.
2. ₹2,70,000, because half the tax component is depreciated annually.
3. Nil, because depreciation has been claimed on the entire GST component. (correct answer)
4. ₹5,40,000, subject to reduction by 5% for every quarter.

Answer: C — Nil, because depreciation has been claimed on the entire GST component.

Explanation. The aggregate GST on the equipment is ₹5,40,000. Section 16(3) prohibits ITC on the tax component of capital goods where depreciation has been claimed on that component under the Income-tax Act. The company has included the entire GST component in its depreciation claim. Hence, ITC on that tax component is disallowed in full. Available credit under this provision = ₹5,40,000 − ₹5,40,000 = Nil.

Where it goes wrong. Assuming that taxable business use overrides the restriction against claiming both income-tax depreciation and GST credit on the same tax component.

Authority. Section 16(3) of the CGST Act, 2017

Question 20 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Steels acquired two machines for taxable manufacturing. Machine A cost ₹5,00,000 plus GST of ₹90,000, and depreciation was claimed only on its base cost. Machine B cost ₹8,00,000 plus GST of ₹1,44,000, and depreciation was claimed on its gross tax-inclusive cost. Both machines were received and supplier payment was completed. Determine the aggregate ITC available after applying section 16(3), assuming there are no other restrictions.

1. ₹1,44,000, being the credit on Machine B alone.
2. ₹2,34,000, representing the GST on both machines.
3. ₹45,000, representing half the GST on Machine A.
4. ₹90,000, being the credit on Machine A alone. (correct answer)

Answer: D — ₹90,000, being the credit on Machine A alone.

Explanation. Machine A: GST of ₹90,000 is excluded from the depreciable amount, so section 16(3) does not prohibit its ITC. Machine B: depreciation is claimed on the GST component of ₹1,44,000, making that credit ineligible. Aggregate eligible ITC = ₹90,000 + ₹0 = ₹90,000. The test must be applied separately to each capital asset rather than to the business as a whole.

Where it goes wrong. Assuming identical ITC treatment for different assets without examining the depreciation claimed on each asset's tax component.

Authority. Section 16(3) of the CGST Act, 2017

Question 21 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered engineering company purchases a specialised machine carrying GST of ₹2,40,000. The machine is used entirely in its taxable manufacturing activities, the supplier receives payment, and the company holds all required purchase documents. However, the company claims depreciation under the Income-tax Act on the GST component of the machine’s cost. Its accounts team argues that the credit should nevertheless be available because the machine produces taxable output. Determine the correct treatment.

1. ITC is unavailable on the ₹2,40,000 tax component under section 16(3). (correct answer)
2. ITC is available because the machine produces only taxable goods.
3. ITC is restricted to ₹1,20,000 because the asset is capitalised.
4. ITC is available provided the depreciation claim is made in the next year.

Answer: A — ITC is unavailable on the ₹2,40,000 tax component under section 16(3).

Explanation. Section 16(1) generally allows credit for eligible business inputs and capital goods. However, section 16(3) specifically denies credit on the tax component where depreciation has been claimed on that component under the Income-tax Act. GST on the machine = ₹2,40,000. Since depreciation was claimed on the entire tax component, the disallowance is ₹2,40,000. Taxable output and payment to the supplier cannot override this specific restriction.

Where it goes wrong. Applying the general business-use eligibility provision without considering the specific restriction in section 16(3).

Authority. Section 16(1) and Section 16(3) of the CGST Act, 2017

Question 22 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered manufacturer purchases an industrial generator for ₹8,00,000 plus GST of ₹1,44,000. Its financial statements initially capitalise the total amount of ₹9,44,000. However, when claiming depreciation under the Income-tax Act, the company excludes GST of ₹1,44,000 and calculates depreciation only on ₹8,00,000. The other conditions for ITC are satisfied. What is the correct amount of credit under section 16(3)?

1. Nil, because the financial books capitalise the GST component.
2. ₹1,44,000, because the income-tax depreciation excludes the tax component. (correct answer)
3. ₹72,000, because GST is excluded from only half the depreciable base.
4. Nil, because depreciation on any capital asset bars GST credit.

Answer: B — ₹1,44,000, because the income-tax depreciation excludes the tax component.

Explanation. Section 16(3) applies only where depreciation is claimed on the tax component under the Income-tax Act. Financial book capitalisation does not by itself result in the statutory prohibition. Here, depreciable cost under the Income-tax Act is ₹8,00,000, while GST of ₹1,44,000 is excluded. Thus, the company has not obtained depreciation on the GST component. The full ITC of ₹1,44,000 is available, subject to other conditions.

Where it goes wrong. Mistaking the accounting cost shown in financial statements for the depreciable cost recognised under the Income-tax Act.

Authority. Section 16(3) of the CGST Act, 2017

Question 23 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Vikramaditya Tech Labs received an eligible tax invoice dated 17 March 2026, carrying GST of ₹1,08,000. The invoice pertains to FY 2025-26, and the supplier reported it within the prescribed period. The company has not yet furnished the annual return for FY 2025-26, but expects to furnish it on 30 December 2026. What is the last date under section 16(4) up to which the company may claim the ITC?

1. 31 March 2027, being the end of the succeeding financial year.
2. 30 December 2026, being the anticipated annual return date.
3. 30 November 2026, being the earlier statutory cut-off date. (correct answer)
4. 20 November 2026, being the ordinary due date for October GSTR-3B.

Answer: C — 30 November 2026, being the earlier statutory cut-off date.

Explanation. The invoice pertains to FY 2025-26, which ended on 31 March 2026. Section 16(4) provides the earlier of 30 November following the end of that financial year or the date of furnishing the relevant annual return. The statutory date is 30 November 2026. The anticipated annual return date is 30 December 2026, which is later. Therefore, the applicable last date is 30 November 2026.

Where it goes wrong. Selecting the annual return date even where it is later than the statutory 30 November cut-off.

Authority. Section 16(4) of the CGST Act, 2017

Question 24 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Steels Ltd has an unclaimed invoice dated 1 May 2025, relating to FY 2025-26, with GST of ₹90,000. The invoice is otherwise eligible. The company furnished its FY 2025-26 annual return on 22 October 2026 and wishes to claim the credit in GSTR-3B filed on 5 November 2026. Which conclusion correctly applies the time limit under section 16(4)?

1. The credit is allowed because 30 November 2026 has not yet arrived.
2. The credit is allowed because the invoice was issued before the financial year ended.
3. Half the credit is allowed because the annual return was furnished early.
4. The claim is time-barred because 22 October 2026 is the earlier date. (correct answer)

Answer: D — The claim is time-barred because 22 October 2026 is the earlier date.

Explanation. The invoice pertains to FY 2025-26. The two possible dates are 30 November 2026 and the annual return furnishing date of 22 October 2026. Under section 16(4), the earlier date controls. Therefore, the time limit expired on 22 October 2026. The proposed claim on 5 November 2026 is after that date. Consequently, the entire credit of ₹90,000 is time-barred.

Where it goes wrong. Treating 30 November as an unconditional extension despite the earlier furnishing of the annual return.

Authority. Section 16(4) of the CGST Act, 2017

Question 25 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Smt. Anuradha Sen receives a debit note dated 5 July 2026 for additional machinery installation charges, carrying GST of ₹72,000. The underlying supply was originally invoiced on 20 February 2025. Anuradha has received the installation services and satisfies all other requirements. Assume her annual return for FY 2026-27 will be furnished after 30 November 2027. Determine the relevant financial year and the corresponding Section 16(4) deadline for claiming ITC on this debit note.

1. FY 2024-25; the credit must be claimed by 30 November 2025.
2. FY 2024-25; the credit must be claimed by 30 November 2026.
3. FY 2025-26; the credit must be claimed by 30 November 2026.
4. FY 2026-27; the credit must be claimed by 30 November 2027. (correct answer)

Answer: D — FY 2026-27; the credit must be claimed by 30 November 2027.

Explanation. The debit note is dated 5 July 2026 and therefore pertains to FY 2026-27 for purposes of section 16(4). The original invoice date of 20 February 2025 does not determine the time limit for credit on the debit note. FY 2026-27 ends on 31 March 2027. The corresponding November deadline is 30 November 2027. Since the annual return is assumed to be furnished later, the last date is 30 November 2027.

Where it goes wrong. Using the original invoice's financial year for a debit note instead of the financial year in which the debit note itself was issued.

Authority. Section 16(4) of the CGST Act, 2017; Circular No. 160/16/2021-GST dated 20.09.2021