GST is the good and services tax. It is an indirect tax that came into effect in India on 1st July 2017. Under GST, Input Tax Credit/ITC is the credit that one can claim on GST after paying for goods and services. You can use these goods and services for further business. ITC is the backbone of GST as it eliminates the descending effects of the tax. A registered taxable person can claim ITC on the goods or services or both (GST registration). The intention of these is to use it for the furtherance of business except for certain cases. These cases are “Blocked Credits”. Blocked credit under GST law in India is the restriction on the eligibility of a person to take the Input Tax Credit on goods and services. You can find the specifications for this under Section 17 (5) of the CGST Act, 2017.
The blocked credits are on the following items:
Under the clause (a), b(i) and (ab) of section 17(5) of the CGST Act, motor vehicles that have approved seating capacity of not more than 13 people, including drivers that are for transportation, have blocked credit. This also includes leasing, renting, and hiring.
- Usage of motor vehicles in the business of supplying cars.
- Usage of motor vehicles for the transportation of passengers. For example, tour agencies can avail ITC on vehicles if they purchase it for the transportation of passengers.
- Usage of motor vehicles in imparting training services like driving.
Vessels and Aircrafts
Under the clause (aa) of Section 17(5) of the CGST Act, ITC usage in respect of vessels and aircraft is not applicable.
When there is a further supply of vessels and aircraft.
Usage of vessels and aircraft for the transportation of passengers.
Usage of vessels or aircraft for imparting training like navigating or flying.
Services related to Motor Vehicles, Vessels and Aircraft
The input service tax is not admissible when it comes to services like general insurance, servicing, repair, and maintenance related to motor vehicles, vessels and aircraft.
Food, Beverages, and others
Under clause b(i), the supply of food and beverages, beauty treatment, outdoor catering, health services, cosmetic and plastic surgery, life, and health insurance does not qualify as eligible to avail ITC.
On inward supply of above goods and services
If a registered person uses both for making outward taxable supply of the same category under which these goods and services fall or both.
Club and Fitness Centre
Under clause b (ii) of section 17(5), membership of clubs, health and fitness care does not fall under the eligibility category to avail ITC. There are no exceptions here.
Under clause b (iii) of section 17(5), the travel benefits like leave or home travel concession, extended to employees who are on vacation do not qualify as eligible for ITC. There are no exceptions here. The person can avail ITC if he/she travels for business purposes.
Under clause c of section 17(5), when work contract services supplied for construction of an immovable property, plant and machinery being the exception, do not qualify as eligible to avail ITC.
The expression construction includes renovation, addition, alterations, repairs, and reconstruction but to the extent of capitalization.
When it is an input service for further supply of works, contract services.
The builder or contractor who undertakes work contract service is eligible to avail ITC. This is because they use these services for further supply of work contract service.
If the expense of construction is not capitalized in books of account of the taxable person.
Procurement of plant and machinery
GST Paid under the Composition Scheme
Under the clause (d) of section 17(5), the goods and services or both on which you have made a tax payment for, under section 10 of the composition scheme, do not qualify as eligible for availing ITC.
Goods/Services received by a Non-Resident Taxable Person
Under the clause (f) of Section 17(5), the goods or services or both, received by a non-resident taxable person falls under blocked credit.
Goods imported by that the non-resident taxable person
Goods and Services used for Personal Consumption:
Under clause (g) of section 17(5), goods or services or both used for personal consumption fall under blocked credit.
Lost, Stolen, Destroyed, Disposed and Free Samples
Under clause (h) of Section 17(5), lost, stolen, destroyed, written off or disposed of goods, as a gift of the way of samples falls under the blocked credit.
Gifts to customers or distributors
ITC is not admissible on gifts. For example, gold coins distributed to customers or distributors based on target sales.
Under clause (i) of Section 17(5). Under sections 74, 129, and 130 of the CGST Act, any tax paid is not eligible for ITC. These cover GST paid after the detection of fraud, suppression, or removal of goods in contravention of the act.
These are the blocked credits under GST in India, applicable to several products and services across industries. It is always a good idea to read up about the tax system and its various clauses. Having a thorough knowledge about them will make us better tax-paying citizens. Knowing theright and wrong in taxes (Tax Planning) will also help us in becoming more responsible in our economic endeavors.