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GST Input Credit Restriction

Published Date: 26-Mar-2020 09:56 AM

Cases Where Input Tax Credit under GST Cannot Be Availed

·        Motor vehicles & conveyance

ITC is not available for Motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver).

Further, ITC is not available on vessels and aircraft.

For example, XYZ & Co. buys a car for its business. They cannot claim ITC on the same.

Further, ITC is not eligible for Repairs and Maintenance of Vehicles on which ITC is not eligible for purchase.

·        Food, beverages, club memberships, and others

ITC is not eligible for the supply of following goods or services or both:

1.       Food and beverages

2.       Outdoor catering

3.       Beauty treatment

4.       Health services

5.       Cosmetic and plastic surgery

However, ITC will be available if the category of inward and outward supply is the same, or the component belongs to a mixed or composite supply under GST.

·        Services of general insurance, servicing, repair, and maintenance

No ITC is allowed on services of general insurance, servicing, repair, and maintenance

Exceptions to ITC on insurance, repair or maintenance

Where received by a taxable person engaged-

1. In the manufacture of such motor vehicles, vessels or aircraft; or

2. In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him

·        Sale of membership in a club, health, fitness centre

No ITC will be allowed on any membership fees for gyms, clubs, etc.

Example: Mr. X, a Managing Director, has taken membership of a club, and the company pays the membership fees.  ITC will not be available to the company or Mr. X.

·        Travel

ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.

Example:  ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed.

·        Works contract

ITC shall not be available for any work contract services. ITC for the construction of immovable property cannot be availed, except where the input service is used for further work contract services.

·        Constructing an immovable property on own account

No ITC is available for goods/services for the construction of an immovable property on his own account. Even if such goods/services are used in the course or furtherance of business, ITC will not be available.

·        Composition Scheme

No ITC would be available to the person who has made the payment of tax under the composition scheme in GST law.

·        No ITC for Non-residents

ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only available on any goods imported by him.

·        No ITC for personal use

No ITC will be available for the goods/ services used for personal purposed and not for business purposes.

·        Free samples and destroyed goods

No ITC is available for goods lost, stolen, destroyed, written off, or given off as gifts or free samples.

·        No ITC in fraud cases

ITC will not be available for any tax paid due to fraud cases which have resulted in

1.       Non or short tax payment or

2.       Excessive refund or

3.       ITC utilised or

4.       Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.

·        No ITC on restaurants

As per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, standalone restaurants will charge only 5% GST but cannot enjoy any ITC on the inputs.

However, restaurants as part of hotels with room tariffs exceeding Rs. 7,500 continue to pay 18% GST and enjoy ITC.

GST Amendment Limits Input Tax Credit Utilisation To 10% on Missing Invoices

Businesses can now avail input tax credit on missing invoices only up to 10 percent of the eligible credit generated from information on valid invoices or debit notes uploaded by a supplier.

 The recently notified amendment in the Central Goods and Services Tax rules brings down the input tax credit from 20 percent to 10 percent on invoices where a supplier has not uploaded the details.

The amendment also allows GST commissioners to disallow utilization of input tax credit if an invoice has been generated fraudulently from a non-existent company or without any supply of goods or services.

What Does the Amendment say?

The GST regime functions on the concept of the input tax credit. Simply put, this mechanism allows a person to reduce the tax paid on inputs from his output tax liability. Originally, the input tax credit was to be calculated after matching invoices uploaded by the seller and the buyer, but invoice-matching has not yet been implemented due to technical limitations in the back-end architecture and accompanying issues.