Input Tax Credit – Who can or cannot claim?

As we have discussed in our previous article Input Tax Credit is the credit of input tax paid on inward supplies that can be availed at the time of computation of actual tax liability of a taxpayer. Any registered taxpayer is eligible to claim ITC under GST, as one of the primary objectives of the introduction of GST is to eliminate the cascading effect of taxes. Which can be eliminated through the free flow of input credit between central and state authorities.

General Disqualification

However, there are certain general disqualifications based on which Input Tax Credit cannot be claimed. These general disqualifications are:

  • The person claiming Input Tax Credit is not a registered taxpayer.
  • The supplier of input goods or services is not a registered taxpayer.
  • If such supplier is a registered taxpayer but has not remitted the tax collected to the government.
  • Such input goods or services are not used in the course of business and thus do not contribute to the outward supplies.
  • A taxpayer claiming the ITC is not in possession of any document certifying the payment of taxes.

Exemptions Under GST

Other than the above stated general disqualifications there are certain exempted cases specified under Section 17(5) of CGST Act, 2017. Few of such situations are specified below.

No ITC for taxes paid on motor vehicles and conveyances. However, there are certain exemptions where registered person can claim ITC, these exemptions are:

  • If it is used for the further supply of services.
  • Used for transportation of passengers.
  • Used for transportation of goods.
  • And the last situation in the list is when it that particular motor vehicle is used for imparting training on driving, flying, navigating such vehicles or conveyances. For example, if any car is used in any driving school, then it is utilized in the course of business of imparting training to their customers. Hence ITC can be claimed for the amount of tax paid at the time of purchase of such car.

For any goods or services provided about:

  • Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery. However, if such goods or services are used as inward supplies by the registered taxpayer for making outward taxable supplies of the same category, then input credit can be availed on the same.
  • Membership of a club, health and fitness center. To understand it further, let’s say if any registered person provides these services to his employees as incentives or rewards, they won’t be considered while calculating input credit as they don’t add any value to the outward supplies of the registered person.
  • Rent-A-Cab, life insurance and health insurance except where Government has notified such services to be mandatorily provided by the employer.
  • Any travel benefits are given to employees on vacation such as leave or home travel concession.

Any services of the nature of works contract supplied for construction of immovable property, other than plant & machinery. However, when these services are used as an input service for the further supply of works contract they can be claimed as ITC.

Any goods or services received by any taxpayer for the construction of immovable property on his own account, other than plant & machinery, even when used in the course or furtherance of business.

If the goods or services are supplied by a composite dealer registered under Section 10 of CGST Act, 2017. There is a simple logic behind the same that no dual benefits are provided to a single taxpayer. Any taxpayer registered under Composition Scheme enjoys the benefit to remit tax at a minimal rate. And they are not authorized to issue tax invoices, without which no ITC can be claimed.

If any goods or services are used for personal consumption, then no ITC can be availed. ITC can only be availed of goods or services which contribute to output either directly or indirectly.

No ITC for taxes paid on Goods lost, stolen, destroyed, written off, gifted, or free samples.

For any tax paid due to small payment on account of fraud, suppression, Mis-declaration, seizure, detention.