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Section 17(2) — ITC where supplies are used partly for taxable + zero-rated and partly for exempt + non-business:
AFull ITC allowed
BITC restricted to so much as is attributable to taxable + zero-rated supplies
CITC fully blocked
DITC only on taxable supplies, exempt always blocked
Answer & Solution
Correct answer: B. ITC restricted to so much as is attributable to taxable + zero-rated supplies
1. Sec 17(2) — ITC must be restricted to the proportion attributable to taxable and zero-rated supplies (Rule 42/43 procedure).
2. Zero-rated (exports, SEZ) is treated as eligible for full ITC; only exempt and non-business uses trigger restriction.
3. Rules 42 and 43 prescribe the reversal mechanism for inputs/services and capital goods respectively.
_Source: ICAI BoS CA Final Paper 8, Ch 6 "Input Tax Credit", §Sec 17(2)_
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