Under Goods and Service Act, 2017 Input Tax Credit (ITC) is being governed by provisions of section 16 to section 20.
As per section 2(62) of the CGST Act 2017 Input tax in relation to a registered person means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy
Hence the definition of the Input tax can be analyzed as following-
1. Input tax includes the taxes paid under the reverse charge mechanism under the ambit of GST.
2. Input tax does not include the supplies used by the person registered as a composition supplier under section 10 of the act.
Input tax credit refers to the credit of the input tax.
As per the provisions of the Section 17, there are certain conditions/ restrictions on the availability of the Input tax Credit (ITC) to be utilized by the registered person. Following are the ITC’s which have been blocked/ not allowed under the GST regime.
1. Motor vehicles & Conveyance except when used for
A. For transportation of goods e.g. Motor vehicles & conveyance used by Goods transportation agency, courier agency etc.
B. For making following taxable supplies:
> Further supply of such vehicle or conveyance
> For transportation of passenger
> For imparting training on driving, flying navigating such vehicles or conveyances
a. Authorized dealers of cars are allowed to avail credit of the ITC paid on purchase of motor vehicles which are meant for further selling to customers.
b. Motor vehicles used by cab service providers shall be allowed to avail the ITC.
c. No ITC shall be available for transportation of employees in the company’s car.
d. Motor Vehicles used by Goods transport agency shall be allowed to avail the credit of Motor Vehicles.
2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where-
A. Inward supply of these is used for making an outward supply of same category or as an element of a taxable composite or mixed supply.
a. ITC on inward supplies of Foods and beverages to a supplier who is providing restaurant service is available provided he is not registered as a composition supplier.
b. In flight caterer is also eligible to avail the ITC for the input.
c. No ITC shall be available to the company who arranges lunch for its employees to mark any occasions.
3. Membership of club, health & fitness center.
a. No ITC can be claimed for membership fees paid for Gyms for the employees of the company.
b. ITC shall be available in case the registered person has availed the membership of corporate houses.
4. Rent a cab, life insurance and health insurance except where
a. The government has made it obligatory for an employer to provide any of these services to its employees
b. Inward supply of these services is used for making an outward supply of same category or as element of a taxable composite supply or mixed supply.
a. No ITC shall be available in case the registered person is into business except when it is mandated by the government.
b. No ITC shall be available for insurance of employees under corporate scheme.
5. Travel benefits extended to employees on vacation such as leave or home travel concession.
No ITC shall be available to the registered person for extension of travel benefits. e.g. foreign trip provided to the senior employees.
6. Works contract services for construction of immovable property except when
a. It is input service for further supply of works contract service e.g. Subcontract
b. Immovable property is plant and machinery i.e. ITC on works contract services used for construction of immovable plant and machinery is available.
a. No ITC shall be available to the registered person for any construction of immovable property except it is construction of plant & machinery.
b. However ITC shall be available if there is sub contracting for construction of immovable property, then the contractor can avail the ITC.
7. Inward supply received by a taxable person for the construction of an immovable property (other than plant and machinery) on his own accounteven when such supplies are used in the course of or furtherance of business
a. If a contractor is building a house for his personal purpose, then he shall not be eligible to avail the ITC on the same. On the contrary if the person is building such immovable property for the further selling then he is eligible to avail the ITC.
b. Such ITC shall not be available even if he is building such immovable for the employees.
c,. Inward supplies on which tax has been paid under Composition scheme
Since the input services availed under composition scheme has been kept outside the definition of the Input tax, no ITC shall be available to the composition supplier.
9. Inward supplies received by Non Resident taxable person except goods importedby him.
a. Non-resident taxable person means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.
b. No ITC shall be available to such person in respect of the goods and services availed by him in India.
c. However, ITC shall be available on the Goods imported by such person. No ITC shall be available against the import of services to such person since only goods have been mentioned.
10. Goods or services used for personal consumption
No ITC shall be available for the inputs which have been used for personal consumption. However if such goods have been used partly for personal consumption and partly for official purpose, ITC shall be available on proportionate basis as specified in the rules issued under the act.
11. Goods that are lost, stolen, destroyed, written off, or disposed of by way of free samples or gift
a. Gift made to the unrelated person is not considered as a taxable supply and no ITC is available in relation to Input goods or services.
b. Free samples given by the pharma companies are also covered by the clause and hence no ITC shall be available in relation to such free samples.
12. Any tax paid under section 74, 129 & 130 of the act.
a. Section 74 deals with recovery of tax in short or not paid by reason of fraud or misrepresentation of facts and figures.
b. Section 129 deals with detention and seizure of such goods which are in transit.
c. Section 130 deals with confiscation of goods in certain situations.
The article has been prepared using various websites and bare act and personal interpretation of the writer.