All about Blocked Credit under GST
Seamless flow of Input Tax Credit is one of the basic purpose behind the introduction of Goods & Services Tax (GST) in India. Every taxpayer must be aware of the Input Tax Credit (ITC) to be availed by them and the amount that is required to be set off against the tax liability in the form of IGST/CGST/SGST/UTGST. However, there is some portion of ITC which is blocked and is not to be considered at the time of setting off with the tax liability. In this Article, we shall be discussing in detail the provisions contained in section 17(5) of the GST Act which deals with blocked credit. Before we proceed to examine the provisions of section 17(5), let us first understand some basic concepts in relation to input tax credit.
Input Tax Credit is the tax that a person pays on a purchase and that it can use to reduce its tax liability when it makes a sale. ITC is available to a person when they are registered as a Taxpayer under the GST Act whether as a Manufacturer, Supplier, Agent or E-Commerce Operator etc.
Following are conditions for availing ITC:
Though ITC can be claimed by a person registered under GST for most inputs, some types of goods and services are not eligible for input tax credit claim. Such ITC are known as Blocked Credit and details are mentioned below:
Clauses (Blocked Credit)
|Exceptions to Clauses (ITC is Available)|
|(a) Motor vehicles having approved seating capacity of not more than thirteen persons (including the driver), for transportation of persons||However, ITC is available if such a motor vehicle is used for making any of the following taxable supplies namely for:
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
|(aa)Vessels and aircraft||However, ITC is available if such vessel or aircraft is used for making any of the following taxable supplies namely for:
(A) further supply of such vessels or aircraft or
(B) transportation of passengers or
(C) imparting training on navigating such vessels or flying such aircraft.
(D) for transportation of goods
|(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa)
|Input tax credit in respect of such services shall be available where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are received by taxable person engaged in:
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;]
|(b) the following supply of goods or services or both:
– food and beverages,
– outdoor catering,
– beauty treatment,
– health services,
– cosmetic and plastic surgery,
– life insurance and health insurance
– membership of a club, health and fitness center
Note: ITC is available when the inward supply of goods and/or services is used by the taxpayer 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.
|Leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa). except when used for the purposes specified therein, life insurance and health insurance.||ITC is available when such motor vehicles, vessels or aircrafts are used for the purposes as stated above.|
|ITC is not available on the travel benefits extended to employees on vacation such as leave or home travel concession||However, ITC is available in respect of goods and/or services where it is obligatory for an employer to provide the same to its employees under any law for the time being in force|
|(c) ITC is not available on works contract services when supplied for construction of an immovable property (other than plant and machinery)||However, ITC is available when such works contract services is input service for further supply of works contract services.|
|(d) goods or services or both received by a taxable person for construction of an 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.
For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
| (e ) goods or services or both on which tax has been paid under section 10 (Composition Scheme)
Note: Under the composition scheme, Section 10 of the GST Act, the tax cannot be charged by the supplier from the recipient, and accordingly question of ITC availed by the recipient does not arise.
|(f) goods or services or both received by a non-resident taxable person||ITC can be claimed on the goods imported by a non-resident taxable person.|
|(g) goods or services or both used for personal consumption||ITC is available only for the supplies taken for business purposes and not for the supplies taken for personal use.|
|(h) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples||—|
|(i) any tax paid in accordance with the provisions of sections 74, 129 and 130
Section 74 – Tax not paid or short paid by reason of fraud or willful misstatement or suppression of facts
Section 129 – Detention, seizure and release of goods/ conveyance
Section 130 – Confiscation of goods/ conveyance
Conclusion: Blocked credit is an essential aspect of the GST framework that taxpayers need to understand to maximize their tax efficiency. While the system of Input Tax Credit provides several benefits, the conditions and exceptions related to blocked credit can affect the amount of ITC you can claim. Always consult with tax professionals to ensure you’re in compliance with the rules laid down in Section 17(5) of the GST Act.
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