Input tax credit (ITC) can be understood as a deduction on total GST payable by the businessman. ITC is availed by the businessman by paying GST on the purchases and other expenses incurred for the business, Thus while paying GST the ITC already paid in the course of Purchase and other expense is deducted and the remainder is paid in cash.
However, in certain cases the GST paid in relation to purchases and other expenses cannot be availed as a deduction. This credit is called as Blocked Credit and is governed by section 17(5) of the Central Goods and Service Tax Act, 2017.
Following are the expense on which the ITC cannot be claimed u/s 17(5)
- Expenses or Purchases in relation to motor vehicles and other conveyances except when they are used for making the following taxable supplies, namely
- further supply of such vehicles or conveyances ( Eg. Maruti suzuki dealer can claim deduction as it supplies such motor vehicles further)
- transportation of passengers – A company engaged in traveling business.
- A business organization that provides services of imparting training on driving, flying, navigating such vehicles or conveyances.
- for transportation of goods – Any business organization that is engaged in transportation of Goods.
- An organization cannot claim ITC Credit if it is involved in providing goods and services both in the nature of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except 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 as an element of a taxable composite or mixed supply;
- Expenses incurred for membership of club or fitness hub etc.
- ITC cannot be claimed for the following services without government notification or when such 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 as part of a taxable composite or mixed supply
– Rent a Cab
-Life Insurance
-Health Insurance
- ITC cannot be claimed on expenses incurred for travel benefits extended to employees on vacation such as leave or home travel concession
- Goods and Service that are used for personal Consumption are not eligible for claiming ITC
- Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;
- ITC cannot be claimed on which tax has been paid under Composition Levy
- ITC cannot be claimed for expenses incurred in respect of construction of an immovable property for personal accommodation or use.
- The expense are ineligible for claiming credit when they are incurred for works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.
- any tax paid in accordance with the provisions of sections 74, 129 and 130 (Evasion of taxes or redemption of confiscated goods /conveyances etc.) is ineligible as ITC deduction.
- Goods or services or both received by a non-resident taxable person except on goods imported by him.
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