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14 Cases Where Input Tax Credit (ITC) Cannot be Claimed

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14 Cases Where Input Tax Credit (ITC) Cannot be Claimed

The Goods and Services Tax (GST) was introduced to the Indian business houses on July 1, 2017. While GST has been constantly evolving into a well-structured taxation system, one thing that sets it apart (from the previous taxation system) is its Input Tax Credit Mechanism. The Input Tax Credit mechanism allows a taxpayer to reduce his tax liabilities on his sales with the taxes paid on inward supplies.

However, there are certain scenarios under which a taxpayer cannot claim ITC. These scenarios can be noted as follows:

Cases when ITC is not available under GST

  1. Motor vehicles & Conveyances
  • A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
  • ITC is not available on vessels and aircraft.

Exceptions
ITC will be available if the given vehicle is being used for

  • Supply of other vehicles, conveyances, vessels or aircraft.
  • Transportation of passengers
  • Training to drive such vehicle, conveyances, vessel or aircraft.
  • Transportation of goods
  1. Food, beverages, Cosmetics, etc.
    A person cannot claim ITC for the tax paid for the follows:
  • Food and beverages
  • Outdoor catering
  • Beauty treatment
  • Health services
  • Cosmetic and plastic surgery

Exceptions
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.

  1. Services of general insurance, servicing, repair and maintenance
    In cases involving general insurance, services, repair or maintenance of a motor vehicle, vessels or draft (as given in point 1), the taxpayer cannot claim ITC.

Exceptions
ITC will be available if

  • Insurance is received by a taxable person engaged—
    • In the manufacture of such motor vehicles, vessels or aircraft; or
    • In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him
  • In case of exceptions as mentioned for motor vehicles/vessels/aircraft (pt. 1)
  1. Sale of membership in a club, health, fitness centre
    ITC is not available on taxes paid for any membership fees for gyms, clubs etc.
  2. Rent-a-cab services, life insurance, health insurance
    ITC is not available for rent-a-cab, health and/or Life insurance

Exceptions:
ITC can be availed if

  • Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force
  • If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply
  • Leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as those mentioned for (1).
  1. Travel
    ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.

Exception:
In cases where taxes are paid for Business travels, the given person is eligible to claim ITC.

  1. Works contract
    ITC cannot be claimed any Works Contract services. Similarly, ITC cannot be availed for the construction of an immovable property.

Exceptions:
ITC is available in cases where the input service is used for further work contract services.

  1. Constructing an immovable property on own account
    For the construction of an immovable property on one's own account, the taxpayer cannot avail ITC on his/her inputs. Similarly, if such goods/services are used in the course or furtherance of business, ITC will not be available.

Exceptions:
ITC is available on inputs used to manufacture plant and machinery for own use. 

  1. Composition Scheme
    A taxpayer registered under composition scheme cannot avail ITC.
  2. Non-residents
    A non-resident taxable person cannot avail refunds under ITC mechanism in GST

Exceptions:
In the case of goods imported by a non-resident taxable person, ITC can be availed.

  1. Personal use
    No ITC will be available for the goods/ services used for personal purposes.
  2. Free samples and destroyed goods
    ITC cannot be availed if the given good is,
  • Lost
  • Stolen
  • Destroyed
  • Written off/given off as gift or free samples.
  1. Restaurant Services
    Standalone restaurants charging 5% GST cannot claim ITC on their inputs.

Exceptions:
Restaurants as part of a hotel, with room tariffs exceeding Rs. 7,500 and paying 18% GST can avail ITC.

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About Vaishali Dedhia

Vaishali

Vaishali Dedhia, a Chartered Accountant, has been working with IRIS for over 7 years and is currently the lead Functional Analyst and Subject Matter Expert for IRIS' GST offerings. She has also been assisting the clients in return filing related queries. Prior to GST, she was involved in compliance and data analysis for the US markets. In her leisure time, Vaishali likes reading novels, listening music and hanging around with friends, family.

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SrinivaS 1 month, 1 week ago

GST Input Tax claim on Building Insurance policy.

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KRISHNA 1 week, 5 days ago

No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles? My question is that can i take input tax credit on Motor Vehicle Insurance in the name of Owner? Reply Me

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Ashwini Gorhe 1 week, 4 days ago

Hello,

ITC on Motor vehicle having capacity less than or equal to 13, on purchase as well as on general insurance, servicing, repair and maintenance is not allowed.

So as per your query you are not allowed to take input credit on motor vehicle having capacity less than or equal to 13 (including driver). Also this vehicle if your are using for business purpose but as transport person then also ITC is not available.

There are some exception for this case those are mentioned in blog as well.

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