Cases when ITC is not available under GST

We have examined some cases where Input Tax Credit ( ITC) is not available

1. Motor vehicles & conveyances

ITC is not available for motor vehicles and conveyances.

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

Exceptions to ITC on motor vehicles

ITC will be available when the vehicle is used for the following.

1. a) Supply of other vehicles or conveyances :If you are in the business of supplying cars then ITC will be available.
2. b) Transportation of passengers :If you are providing transportation of passengers then ITC will be allowed on the vehicle purchased.
3. c) Imparting training on driving, flying, navigating such vehicle or conveyances
4. d) Transportation of goods
5. Food, beverages, club memberships and others :ITC is not for the supply of following goods or services or both:

• Food and beverages
• Outdoor catering
• Beauty treatment
• Health services
• Cosmetic and plastic surgery

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

3. Sale of membership in a club, health, fitness centre

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

4. Rent-a-cab, life insurance, health insurance

ITC is not available for rent-a-cab, health insurance and life insurance.

However, the following are exceptions, i.e., ITC is available for-

1. Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force
2. If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply
3. Travel

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

6. Works contract

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

7. Constructing an immovable property on own account

No ITC is available for goods/services for 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.

But this rule does not apply to plant or machinery. ITC is available on inputs used to manufacture plant and machinery for own use.

8. Composition Scheme

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

9. 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.

10. No ITC for personal use

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

11. Free samples and destroyed goods

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

12. No ITC in fraud cases

 ITC will not be available for any tax paid due to fraud cases which has resulted into –

1. Non or short tax payment or
2. Excessive refund or
3. ITC utilised or

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

13. 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 still continue pay 18% GST and enjoy ITC.

While claiming incorrect Input tax credit can be costly in view of the penalties and compliance costs later, it is equally important to understand the importance of claiming full input tax credit that is genuinely available to a dealer.

Please free to for a no frills advisory on GST Input tax credit and GST compliances with our experts or write to us on gstcompliances@finegral.com