When selling both taxable and tax-exempt goods and services, how does one deduct tax incurred on purchases?
A tax-payer can supply both taxable and tax-exempt goods and services. In such cases, the raw materials used in the production of both could have used from the same stock and the same telephone and electricity lines could have been for used for both purposes. Similarly, the same machine could have been used for the production of both. From among the total tax incurred in purchases, a person who is registered for both taxable and tax-exempt goods and services can deduct or get refund only the portion of input tax related to the sales of taxable goods. For example, a businessman produces products made of steel and iron. He produces taxable items such as metal furniture and domestic utensils and tax-exempt items such as agricultural equipment. This producer can deduct or claim tax incurred in purchases of goods or services based on the ratio of taxable sales. The case can be further exemplified by the figures given below.
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