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Input tax credit is considered very significant for every business unit which is always in the need to invest in the business in the manner of capital. The need of capital is required each and every time a business gets ready for its next project. This time in GST, a business unit will be eligible for input tax credit, only if certain cases are met with the transactions.

Invoice matching of both the parties will be the key issue for checking and granting the input tax credit to the dealer while in certain cases, input tax credit may not be available for some rules and regulation purpose.

Some of the Goods and Service which are not Eligible for Input Tax Credit

 

S.No. Items Exceptions
1 Motor Vehicles Except in cases

 

  • Extended supply of such vehicles or conveyances;
  • Transportation of passengers or
2 Other Conveyances
  • Providing training on driving, navigating such vehicles or
  • Conveyances for transportation of goods;
3 Foods, Outdoor Catering, Beauty Treatment, Health Services Cosmetic, Plastic Surgery Except where an inward supply of goods or services or both of a particular category is consumed 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
4 Membership of a Club,
5 Membership of a Health Centre
6 Membership of a Fitness Centre;
7 Rent-a-cab, Life Insurance, Health Insurance
  • The Government states the services which are mandatory for an employer to provide to its employees under any law for the time being in force; or
  • 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.
8 Travel benefits extended to employees on vacation such as leave
9 Travel benefits on home travel concession
11 Works contract services when supplied for construction of an immovable property Except where it is an input service for extended supply of works contract service and plant and machinery
12 Goods or services or both received by a taxable person for construction of an immovable property Except goods or services received on his own account including when such goods or services or both are used in the course or furtherance of business and plant and machinery
13 Goods or services or both on which tax has been paid under section 10; ie. Under section 10 composition scheme
14 Goods or services or both received by a non-resident taxable person Except on goods imported by him
15 Goods or services or both used for personal consumption
16 Goods lost
17 Goods written off
18 Goods destroyed
19 Goods stolen
20 Goods disposed of by way of gift or free
samples
21 Any tax paid in accordance with the provisions of sections 74, 129 and 130. I.e. In Fraud, Misstatement, etc.

 

1. Motor Vehicles and other conveyances

Input tax credit on purchase, maintenance, insurance in respect of motor vehicles are not eligible.

Input tax credit is available only when they are used for providing the following taxable supplies:

1. Further supply of such vehicles or conveyances

2. Transportation of passengers

3. Imparting training on driving, flying, navigating such vehicles or conveyances

4. Transportation of goods

2. Supply of Goods or Services not eligible for Input Tax Credit:

The following goods or services are not eligible for input tax credit:

1. Food and beverages

2. Outdoor catering

3. Beauty treatment

4. Health services

5. Cosmetic and plastic surgery

Note: If the above goods or services are used to provide outward taxable supplies of the same category then, input tax credit is available.

1. Membership of a club, health and fitness centre

2. Rent-a-cab, life insurance and health insurance – input tax credit available only where the same is provided to the employees by the employer as a statutory obligatory under any law as notified by the Government or such services are used to provide outward taxable supplies of the same category

3. Travel benefits extended to employees on vacation such as leave or home travel concession

3. Works Contract Service

Works contract services are not eligible for input tax credit when supplied for construction of an immovable property other than plant and machinery except where it is used as input service for further supply of works contract service.

Example 1: If ABC, a manufacturing company who manufactures steel, gives contract to XYZ, a construction company to construct a building for its office, ABC cannot take input tax credit on the invoice issued by XYZ.

While XYZ receives the service of painting of the office, from DEF, a service provider, XYZ can take input tax credit of the invoice issued by DEF as it is used as input service for providing works contact service of constructing the office to ABC.

4. Construction of Immovable Property by own account

When the goods or services received for construction of an immovable property other than plant and machinery by own account including when such goods or services or both are used in the course or furtherance of business

Example 2:

XYZ, a building contractor company, builds an office for its own use, it cannot take input tax credit.

Note: ‘Construction’ as mentioned in the point No.3 & 4, includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation to the said immovable property.

Example 3: ABC as in the Example 1, makes some repair work in its office building and treats the expenditure as revenue expenditure, then it can take input tax credit.  If the expenses are capitalised in the books, then no ITC is available.

5. Composition Scheme

Composition dealers who pay tax under section 10, cannot take input tax credit on the goods or services or both received by them.

6. Non-Residents

Non-resident taxable person cannot take input tax credit on the goods or services or both received except on goods imported by him.

7. Personal Consumption

When the goods or services are used for personal consumption, input tax credit is not available.

8. Lost, Stolen, Destroyed, Free Samples, Gifts

Input tax credit is not available on the goods which are lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

9. Fraud, Seizure and Confiscation

Input tax credit is not available on any tax paid under the circumstances of the following sections:

Section 74 – Input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts

Section 129 – Input tax credit on the goods seized

Section 130 – Input tax credit on the goods confiscated

Note: Plant and Machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes the below:

  • Land, building or any other civil structures
  • Telecommunication towers
  • Pipelines laid outside the factory premises

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