Explanation
Under CGST Rules 42 and 43, a registered person who uses inputs/capital goods for both taxable and exempt supplies must reverse ITC proportionally. Rule 42 (inputs and input services): calculate the proportion of exempt turnover to total turnover; reverse that proportion of ITC. Rule 43 (capital goods): compute ITC attributable to exempted supplies on a useful-life basis (5 years). The aggregate reversal amount must be reported in Table 4(B)(2) of GSTR-3B. Annual reconciliation is done in GSTR-9. This is one of the most common audit findings. Verify on the GST portal before filing.