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Rule 42 — common credit (used partly for business + taxable and partly for exempt + non-business): attribute the proportion of common credit that is attributable to exempt supplies (D1) using the formula:
AD1 = (Common Credit) × (Exempt turnover / Total turnover) of the State
BD1 = Total credit always 50%
CD1 = Common credit × (Taxable / Total)
DD1 = (Common credit) × Tax rate
Answer & Solution
Correct answer: A. D1 = (Common Credit) × (Exempt turnover / Total turnover) of the State
1. Rule 42 — D1 = C2 × (E/F) where C2 = common credit, E = aggregate value of exempt supplies during tax period, F = total turnover in State.
2. D2 = 5% of C2 (for non-business use, deemed reversal).
3. Net eligible common credit = C2 - D1 - D2.
_Source: ICAI BoS CA Final Paper 8, Ch 6 "Input Tax Credit", §Rule 42_
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