If you are a manufacturer, wholesaler, supplier, agent, e-commerce operator registered under the GST, then you are eligible to claim the input tax credit for tax paid on your purchases. However, there are a certain set of goods and services on which the Act does not allow any credit. There is  comprehensive list of supplies on which Input tax credit is blocked.

 

1. What is Input Tax Credit?

 

Input tax credit means at the time paying the output tax; you can reduce the tax you have already paid on the inputs.

 

Let us try the following example

 

Ram charges his clients a total of Rs 6,00,000 in a month. He charges rupees 1,08,000 GST (@18%) on the services provided. He has paid certain expenses for the furtherance of his business which resulted in a total of rupees 5,50,000. Now, the GST paid on these expenses by him i.e. 18% of 5,50,000 = Rs 99,000. This 99,000 is his input Ineligible Input Tax Credit under Section 17(5) of GST Services GST Tools Knowledge Center Contact Us  LOGIN tax credit which he can reduce from his output tax liability of rupees 1,08,000. Thus, he has deposit only Rs 9,000.

 

The input tax credit mechanism under GST is structured as such to avoid double taxation which was one of the biggest flaws of the previous tax system.

 

2. What does the Law say?

 ITC will not be available in respect of the following, namely:

 

• Motor vehicles and other conveyances apart from when they are used–

 

• for transporting the goods; or
• for making the following taxable supplies, namely:further supplying such vehicles or conveyances; orTransporting the passengers; or Imparting training on driving, navigating, flying such vehicles or conveyances;

 

• The following supply of goods or services or both—

 

• food and beverages, beauty treatment, cosmetic and plastic surgery, health services, outdoor catering, except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;

 

• membership of a club, health and fitness center;

 

• rent-a-cab, life insurance and health insurance except where––

 

          The Government notifies the services which are obligatory for an employer to provide to its employees                under any law for the time being in force; or

           Such inward supply of goods or services or both of particular categories is used by a registered person               for making an outward taxable supply of the same category of goods or services or both or as part of a               taxable composite or mixed supply; and

           Travel benefits extended to employees on vacation such as leave or home travel concession;

 

• works contract services when supplied for construction of immovable property (other than plant and machinery) except where it is an input service for the further supply of works contract service;

 

• goods or services or both received by a taxable person for construction of immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

 

3. Supplies on which ITC is not applicable

 

• Motor cycles and other conveyances ITC is available on motor cycles and other conveyances only when they are used for making the following taxable supplies

 

• Further supply of such vehicles or conveyances

 

• Transportation of passengers

 

• Imparting training on driving, flying, navigating such vehicles or conveyances

So, apart from the exceptions, ITC cannot be availed on purchase of motor cycles and other conveyance. ITC can be availed when these are used for transportation of goods for either self or some other recipient.

 

 

• Specific goods and / or services or both ITC will not be available to a registered person for the following receipt of goods of services or both:

 

• Food and beverages
• Outdoor catering services
• Beauty treatment
• Health services
• Cosmetic and plastic surgery services

 

ITC will be available on the above when an inward supply of goods and / or services or both of the above mentioned categories is used for making an outward taxable supply of goods and/or services or both or as an element of taxable composite or mixed supply

 

• Membership of a club, health and fitness center ITC cannot be availed on tax paid for membership of club, health and fitness center under any circumstances. This restriction is absolute, and there is no exception.

 

• Rent cab, health insurance, life insurance: ITC shall not be available to registered persons on renting a cab, life and health insurance supplies received by it. This restriction is not absolute. ITC will be available where the government notifies the services which are obligatory for an employer to provide to his employees for the time being in force. Also, where such an inward supply of goods and services or both of a particular category is used by a registered person to make an outward taxable supply of the same category, or when it is used as a part of composite mixed supply, ITC is allowed. Also, The ITC on the supply of above services is allowed when it is paid on account of travel benefits extended to employees on vacation such as leave travel concession

 

• Works contract services when supplied for construction of immovable property: ITC not available to a registered person for the tax paid on the inward supply of works contract services used for the construction of immovable property. This is not applicable to the construction of plant and machinery. Where it is input used for further supplying of a works contract service, ITC is available.

 

• Goods and / or services or both on which tax has been paid u/s 10

 

• Goods and / or services or both received by a non-resident taxable person except on goods imported by him

 

• Goods or services or both used for personal consumption

 

• Goods lost, stolen, destroyed, written off or disposed off by way of gift or free samples.

 

 

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