Input Tax Credit (ITC) of the tax paid on almost all taxable supply of goods or services or both, used in the course or furtherance of business is allowed under GST except the list of supply provided in Section 17(5) of CGST Act, 2017. When registered taxpayer will not be entitled to claim tax credit is discussed in this article.
The Input Tax Credit (ITC) will not be available for the below mentioned Supplies-
ITC will not be available if vehicles, having the capacity of not more than 13 persons, is used for transportation and business purposes. However, ITC can be claimed under some exceptions which are mentioned in the below article.
ABD Pvt Ltd buys a vehicle for the business purpose, they cannot claim ITC on the basis of this purchase.
Vessel and Aircraft
If a business enterprise receives services related to:
- Renting of vessels or aircraft
- Hiring of vessels or aircraft
- Leasing of vessels or aircraft
ITC will not be allowed. However, if they are used in further supply of such vessel and aircraft or for Training on navigation of such vessel and aircraft, ITC will be available.
ABC Pvt Ltd paid the rent of car and the car is used by the Director for personal benefits, the GST paid on rent will not available for Credit.
Supply Received by Person
If a person paid tax for the supplies of-
- Food and beverages
- Health services
- Catering from outside
- Beauty treatment
- Cosmetics and plastic surgery
then Tax paid on such supplies will not be available as ITC.
However, if the above supplies are received for making an outward supply of the same category or as part of mixed or composite supply, ITC is available.
No ITC will be claimed against the payment of foods and beverages which are ordered by any person. However, if the company is in the business of food and beverages then tax paid can be claimed as ITC.
Rent a Cab, Life Insurance and Health Insurance
Person cannot claim ITC on renting a cab for business purpose. Also, if a company pays for the health and life insurance then too ITC is not available.
However, if the above supplies are received for making an outward supply of the same category or as part of mixed or composite supply, ITC is available. Also, if the Government has made it obligfatory to provide any of these services to its employees, ITC is available.
XYV Pvt Ltd will not claim against the payment of Life insurance or Health insurance of any employee until mentioned under any law.
If an entity or a company or person provides travel benefits to employees for vacation or any other purpose which is not related to the business then ITC will not be available.
No ITC is available if the business entity paid the travel expenses of the employee for his family tour.
Works contract means a contract of services which involves supply of goods. For example – construction of a bridge or building, erection, installation of plant and machinery. GST paid on works contract (other than plant and machinery) will not be available as credit except when the supply of contract is used for providing further taxable supplies.
ABC Ltd contacts XYZ & Company for the construction of the office. XYZ & Company charged GST on their work contract. No ITC is available for ABC Ltd on the payment of GST against the service.
However, if ABC Ltd is an interior designer and after the construction of office, they did interior designing of the office and sold the office to the third party then ITC can be claimed against the payment of GST made to XYZ & Company.
- Construction Of Own Immovable Property
Goods or services received by a taxable person for construction of an immovable property on his own account (other than plant and machinery) even when used in course or furtherance of business, ITC will be blocked credit.
A Ltd builds an office for its own use. No ITC is available as office building is for self-use. If A Ltd builds Plant and Machinery, then ITC will be available.
Capitalization Of amount paid along with tax on Immovable Property
Sometimes major expenses are incurred for the purpose of reconstruction, additions, alterations or repairs which enhances the capacity of immovable property (other than plant and machinery). These expenses are capitalized, it means needed to be added to the cost of immovable property. ITC will be blocked on these expenses.
Mr. Pramod, an owner of the hotel, made significant expenses for additions in his hotel. Such expenses enhanced the capacity of the hotel so it will be capitalized. Any GST paid will not be claimed as ITC.
No ITC will be available to the person who has opted the payment of tax under composition Scheme of GST.
Free Sample And Loss of Goods
For the goods or services which were provided as a free sample or on a trial basis, ITC should not be claimed. GST paid on the goods stolen, destroyed or written off as gift or free samples will not available as ITC. It means if the taxable person paid tax and no further sale is made or taxable supply is not done, no ITC is available.
X Ltd. distributed the free samples of its product in the market. X Ltd. Cannot claim ITC on the goods.
For more read the article– Supply done Free Of Cost
As per the law and provisions of GST Act, no ITC is available if the supply of business is taxable and used for personal benefit. In other words, no ITC if the supply is used for a personal purpose, not for business purpose.
BabaTax has General store. If he takes some goods of its store to home, then the ITC paid on such goods will not be available to BabaTax.
Tax paid as a result of evasion of taxes or any penalty.
Default or fraud cases which has resulted into payment of tax or penalty. ITC will not be available for any tax or penalty paid due to–
- Non or short tax payment or
- Excessive refund or
- ITC utilised or
- Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.
No ITC on 5% GST rate
As per the notifications issued by Government time to time, restaurants or others (5% GST rate applicable) can charge 5% GST from the customers but will not enjoy ITC on the inputs which are used for doing the taxable supply. As 5% GST rate restricts the availability of ITC.
ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only available on any goods imported by him.
For any questions, you may reach us at Discussion Forum
The authors of above article is Aditya Kishore.