Input Tax Credit Restriction

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Goods and Services Tax aims at providing seamless flow of credit throughout supply chain. However, below is a list of few situations as mentioned in section 17 of Central GST Act, 2017 where input tax credit will not be available:

  1. Goods or Services Partly used for Business Purpose :

    The Act specifically states that input tax credit can only be taken for the amount of input tax paid on goods or services or both used for the purpose of business. Thus, if goods or services or both are used partly for purpose of business and partly for other purpose, only that amount of input tax which is attributable to the purpose of business will be allowed as credit.

  2. Zero Rated and Exempted Supplies:

    Where Goods or services or both are used partly for taxable supplies including zero rated supplies under IGST or under CGST Act, and partly for exempted supplies, only that amount of input tax which is attributable to the taxable supplies including zero rated supplies will be allowed as credit.

  3. Motor Vehicle and other Conveyance:

    Input tax credit is not available on motor vehicle and other conveyance. However, if motor vehicle and other conveyance are used for taxable supply of transportation of such vehicles/conveyances, transport of passengers or imparting training on flying, driving and navigating such vehicles or conveyances or for transportation of such goods, Input Tax Credit will be allowed.

  4. Food and Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic and Plastic Surgery:

    Input tax credit is not available on supply of above mentioned services 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. Thus, if a caterer uses a service of another caterer, Input Tax Credit will be allowed.

  5. Membership of a Club, Health and Fitness Center:

    Input tax credit is not available on supply of membership of a club, health and fitness center.

  6. Rent-a-cab, Life Insurance and Health Insurance:

    Input tax credit is not available on supply of services of rent-a-cab, life insurance and health insurance. However, where the Government notifies the services which are obligatory 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, input tax credit will be available.

  7. Travel Benefits Extended to Employees on Vacation Such as Leave or Home Travel Concession:

    Input tax credit is not available on travel benefits extended to employees on vacation such as leave or home travel concession.

  8. Works Contract Services:

    Input tax credit is not available on works contract services when supplied for construction of an immovable property (other than plant and machinery). However, Input Tax Credit will be allowed when it is an input service for further supply of works contract service.

  9. Construction on Own Account:

    Input tax credit on goods or services by a person for construction of immovable property, other than plant and machinery, is not allowed.

  10. Tax Paid under Composition Scheme:

    If tax has been paid under composition scheme on supply of goods or services or both, input tax credit is not allowed.

  11. Goods or Services or Both Received by a Non-Resident Taxable Person:

    Input Tax Credit is not allowed when goods or services or both are received by a non-resident taxable person, however, if goods are imported by such non-taxable person, input tax credit will be allowed.

  12. Goods or Services or Both Used for Personal Consumption:

    Input tax credit is not allowed for goods or services or both used for personal consumption.

  13. Goods Lost, Stolen, Destroyed, Written Off or disposed of by way of gift or free samples:

    Input tax credit is not allowed with respect to goods lost, stolen, destroyed or written off as well as on goods given as gifts or free samples will also be not allowed.

Note – Please note that the above article is part of our continuous research on the related matters. It is based on our interpretation of related regulations which may differ person to person. Readers are expected to take expert opinion before relying on above.

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