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Block Credit Under GST

by Madhav Joshi

Posted on December 3, 2020

Gst, calculator , hand

What is ITC?

Input Tax Credit (ITC) is the tax that a business pays on an Inward and that it can use to reduce their tax liability when it makes an outward supply.

In other words, ITC means the taxpayer at the time of paying tax on sales, the taxpayer can reduce the tax the taxpayer has already paid on the purchase. 

List of blocked credits where ITC are not available u/s 17(5)

ITC is not allowed on your services of general insurance, servicing, repair and maintenance if you relate to motor vehicles, vessels or craft. For example: ABC & co. buys a car having a capacity of fewer than 13 persons for their business. They can’t claim ITC on the car.

1) Motor vehicle and conveyances [u/s 17(5)(a)

The ITC is not available when a motor vehicle is used for transportation of a person having a seating capacity of not more than 13 persons (including the driver). Also ITC not available on vessels and aircraft. 

1.Exception where ITC is available in Motor vehicle and conveyances:

If a vehicle is used for making taxable supplies by following: 

A) Further supply of such motor vehicle
B) Transportation of passenger
C) Training the driver on driving, flying, navigating such vehicle or conveyances or vessels or  aircrafts
D) Transportation of goods
E) ITC on services of general insurance, servicing, repair and maintenance related to a motor vehicle  are available Were received by a taxable person engaged

I) within the manufacture of such motor vehicles, vessels or aircraft or 
II) Within the supply of general insurance services in respect of such motor vehicles, vessels, or  aircraft insured by him 

For example, XYZ & co. purchased a vehicle for any of the above purposes so they can claim it on the vehicle.

2. ITC not available in the following goods and service or both: 

• Food and beverages 
• Outdoor catering 
• Beauty treatment 
• Health services 
• Cosmetic and plastic surgery 
• leasing, renting or hiring of any motor vehicles, vessels or aircraft
• Life insurance and health insurance

The ITC in such goods and service or both shall be available if such goods and service is used for  further outward taxable composition and mixed supply.

If it is obligatory for an employer to provide the above goods and service or both to its employees  under any law for the time being in force.

Example: assuming the government passes a rule for employers to provide mandatory cab service to  females in night shifts and life insurance and health insurance for all the such a case ITC can be claimed on renting a cab and insurance.

3. Fees paid on membership in a club, health, fitness center

ITC are not allowed any fees paid in gym, club and health center for membership.

4. Travel

ITC is not available on travel, benefits extended to employees on vacation like leave or home travel concession.

5. Works contract

ITC is not available on works contract or construction of an immovable property. ITC on work contract services availed by Builders/ developers for providing outward supply of services. If any revenue expenditure is incurred on office building then ITC could be claimed on such expense.

6. Constructing an immovable property on own account

The taxpayer constructs the immovable property on his own account (other than plant and machinery),  the taxpayer can’t avail ITC on goods and service or both received on construction even such goods and  service or both are used in course of furtherance of business.

If the taxpayer is constructing such immovable property for the further outward supply then the taxpayer can  avail the ITC.

As per the above Term ‘construction’ includes re-construction, renovation, additions or alterations or  repairs.

7. Composition scheme

If the taxpayer registered (under section 10) composition scheme then they can’t avail ITC.

8. Non residents

A non-resident taxable person can’t avail ITC on goods and service or both received in India. ITC shall be available on the Goods imported by non-resident taxable persons.

9. ITC will not be available for goods and service or both are used for personal purpose

10. Free samples and destroyed goods

ITC is not available if goods are Lost, Stolen, Destroyed, and Written off/given off as gifts or free samples.

11. Any tax paid in terms of section 74, 129 or 130

Section 74: Taxes are not paid or short paid or erroneously refunded or utilized by reason of fraud or  willful misstatement.

Section 129: Amount paid on Detention and release of goods and conveyance in transit.

Section 130: Confiscation of goods and/ or conveyance and levy of penalty.

In all of the above cases, if any payment is made by any person under these sections, no input tax credit will be available.

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