Supplies on which Input Tax Credit (ITC) is not allowed in GST

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Supplies on which input tax credit is not allowed in GST

Under GST regime input tax credit is available on goods and services received for the use in business. But there are certain conditions specified in section 17(5) of CGST act in which input tax credit is not available. The said section is briefed in table below:

SectionITC not allowedException (to whom credit is allowed)
17(5)(a)motor vehicles and other conveyancesWhen they are used–

(i) for making the following taxable supplies, namely:—

(A) further supply of such vehicles              or conveyances ; or

(B) transportation of passengers; or

(C) imparting training on driving,                flying, navigating such vehicles              or conveyances;

(ii) for transportation of goods.

17(5)(b)(i)food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgeryIf these are used 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.
17(5)(b)(ii)membership of a club, health and fitness centreNo exception
17(5)(b)(iii)rent-a-cab, life insurance and health insuranceExcept where––

(A) the Government notifies the services which are obligatory for an employer to provide to its employees; or

(B) such inward supply of goods or services or both

is used 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.

17(5)(b)(iv)travel benefits extended to employees on vacation (LTA)No exception
17(5)(c)works contract services for construction (“construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property) of an immovable

property

(i)  used for Pant and Machinery

(ii) where it is an input service for further supply of works contract service for e.g. service of sub-contractor used by contractor.

17(5)(d)goods or services or both received for construction (“construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property) ( or in the course or furtherance of business) of an immovable propertyUsed for Plant and Machinery
17(5)(e)Purchase from composite dealersNo exception
17(5)(f)non-resident taxable person receives goods or services or bothGoods imported by non resident taxable person
17(5)(g)goods or services or both used for personal consumptionNo exception
17(5)(h)goods lost, stolen, destroyed, written off or disposed of by way of gift or free samplesNo exception
17(5)(i)

Read with sec 74 of CGST Act

Any tax paid due to-

  • Tax not paid
  • Short paid
  • Erroneously refunded
  • Input tax credit has been wrongly availed or utilised

by reason of

  • fraud
  • any wilful-misstatement
  • suppression of facts

to evade tax

No exception
17(5)(i)

Read with sec 129 of CGST Act

Any tax paid due to-

  • detention or seizure (where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules liable to detection or seizure) and release of goods and conveyance in transit
No exception
17(5)(i)

Read with sec 130 of CGST Act

Any tax paid due to confiscation of goods or conveyances if due to following reason:

If any person-

(i) supplies or receives any goods in contravention of Act or  rules with intent to evade payment of tax; or

(ii) does not account for any goods on which he is liable to pay tax; or

(iii) supplies any goods liable to tax without having applied for registration; or

(iv) contravenes any of the provisions of this Act or the rules with intent to evade payment of tax; or

(v) uses any conveyance as a means of transport for carriage of goods in contravention of Act or rules

No exception

 

Supplies on which input tax credit is partially allowed in GST

There are certain situations specified in GST Act where ITC is partially allowed which are as follows:

Section

Situations

Credit Allowed

17(1)goods or services or both are used partly for the purpose of any business and partly for  purposes other than businessThe amount of input tax credit allowed shall be only for that portion which has been used for the purpose of business.
17(2)goods or services or both are used partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt suppliesThe amount of input tax credit allowed shall by only for that portion which has been used for said taxable supplies including zero-rated supplies
17(4)A banking company or a financial institution including a non-banking financial CompanyThey have options to choose one from below specified methods:

  • to avail input tax credit in accordance with section 17(2); or
  • to avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse

 

Other conditions to fulfil:

  • the option once exercised shall not be withdrawn during the remaining part of the financial year
  • the restriction of 50%  shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.

 

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