Cases where Input Tax Credit isn't available under GST
Updated: Feb 5
The one of the most advantageous part of GST Act is the availability of Input Tax Credit (ITC) in the normal course of business.
However, under section 17(5) of Central Goods and Services Act, 2017 there is a list of Goods and Services on which Input Tax Credit (ITC) is NOT available. We have simplified the law to understand the concept in brief.Let us discuss them.
Input Tax Credit is not available in following cases
1. Motor Vehicles and other conveyance
Under Section 17(5)(a) ITC is not available for motor vehicles and other conveyances (including cars, buses, aircraft, trucks, boats, etc.) except when they are used for:-
(i) Transporting of goods
If motor vehicles and other conveyances are used for transportation of goods from one place to another, then ITC on motor vehicle is allowed. However, this exception is for other transporters but not Goods Transport Agencies (GTA)
(ii) Transporting of passengers
If you are in the business of transporting passengers then ITC is allowed if vehicle is used for transportation of passengers.
For example – Sai Tours and Travels purchased bus for transportation of passengers, then ITC is available.
(iii) Further supply of vehicles
If you are buying vehicles for selling it, then ITC will be available.
For example – A car dealer purchases car and pays GST on purchase price, then he is allowed to claim that GST as ITC while selling that car.
(iv) Imparting Training on driving, navigating, flying such vehicles or conveyances
In case of a driving school that imparts training to students, the GST paid by them for purchase of Car can be claimed as ITC.
2. Food, beverages , outdoor catering, beauty treatment, cosmetic surgery, health services
ITC is not allowed for supply of below goods or services or both:
(i) Food and beverages
(ii) Outdoor catering
(iii) Beauty Treatments
(iv) Cosmetic surgery
(v) Health services
However, ITC is allowed 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 an element of taxable composite or mixed supply.
Let us understand the above with an example
If you take your prospective client to dinner, then the expenses of food and beverage do not qualify for ITC.
However, if a caterer takes services of another caterer for serving the order to the customer, then the caterer is allowed ITC on service charges paid to another caterer.
3. Membership of club, health and fitness center
No ITC is allowed on club membership, health and fitness center membership.
For example, Mr.A is a Managing Director of ABC Ltd, Mr.A pays for his membership at a club. In this case ITC is not available either to Mr.A or the Company ABC Ltd.
4. Rent a Cab, Life Insurance, Health Insurance
No ITC is allowed on services of Rent a Cab, Life Insurance, Health Insurance but following are the exceptions:
(i) The services which are made obligatory for an employer to provide to its employees under any law currently in force in India.
(ii) If the Inward supply are used for providing the outward supply of the same category or it is part of the mixed or composite supply.
5. Travel Benefits to employees
ITC is not allowed on Travel benefits to employees such as Leave Travel Allowances (LTA) or Home Travel concessions.
6. Works Contract Services
ITC on Works Contract Services is not allowed when supplied for construction of immovable property
except-
When the input services is used for further supply of works contract services.
7. Construction of immovable property
No ITC will be allowed for construction of an immovable property on his own account, including goods or services or both used in the course of furtherance of business.
However, this rule is not applicable for plant and machinery. Hence, ITC is available for goods or services or both used for construction/ manufacturing of plant and machinery.
8. Composition Scheme
If you have paid or opted for GST under Composition scheme, No ITC would be available to you.
9. ITC for Non- Residents
ITC is not available on goods/ services received by non-resident taxable person. However, ITC is available to him if any goods is imported by him.
10. ITC for Personal Use
If goods or services or both are used for personal consumption, ITC is not available.
11. Goods Stolen, Destroyed, written off, gift, free sample
ITC is not available for any of the followings:
- Goods Stolen
- Goods destroyed by fire or otherwise
- Goods written off
- Goods given as gifts or free samples
12. Fraud or willful misstatement
ITC is not available if tax is paid for any of the following:
- Any Tax paid due to non-payment or
- partial payment of tax, or
- excessive or erroneous refund, or
- ITC utilized as fraud or willful misstatement or
- Any tax paid as per sections 74, 129, 130
So we have briefed about cases where Input Tax Credit (ITC) isn't available under GST.
About an Author:
Mr. Rehman Bhamani is a practicing chartered accountant having experience of more than 9 years. He is actively writing blogs and informative articles on various platforms and is very well experienced in GST and Income Tax.