Eligibility to Claim Input Tax Credit under GST

Ashish M. Shaji

25 Nov, 2020

One of the benefits of GST registration in India is that the taxpayer is eligible to claim ITC for taxes paid on inward supplies. This was done to fulfil one of the primary objectives of the introduction of GST, to eliminate the cascading effect of taxes which can be eliminated through the free flow of input credit between central and state authorities. However, in some cases, the taxpayer is not eligible to Claim Input Tax Credit. Such situations will be discussed in this article.

General Disqualification

There are certain general disqualifications based on which the taxpayer is not eligible to Claim Input Tax Credit. 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 a 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.

List of Conditions where taxpayer cannot claim Input Tax Credit

Other than the above stated general disqualifications, Section 17(5) of CGST Act, 2017 also specifies a list of conditions where the taxpayer is not eligible to claim Input Tax Credit. Few of such situations are specified below.

1. No ITC for taxes paid on motor vehicles and conveyances. However, there are certain exemptions where a 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 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.

2. For any goods or services like:

• 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 centre. 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.

3. Any services of the nature of works contract supplied for construction of an 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.

4. 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.

5. If the goods or services are supplied by a composite dealer registered under Section 10 of CGST Act, 2017^[1]. 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.

6. 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.

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

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

Conditions to claim Input Tax Credit

The following conditions are to be fulfilled in order to claim Input Tax Credit:

• Possession of Tax Invoice;
• Receipt of Goods/Services;
• Goods delivered by a supplier to other person on direction from a registered person against a document of transfer of title of goods;
• Where goods are received in lots or instalments;
• Furnishing of a return.

Conclusion

It may be noted that the time limit to claim Input Tax Credit against an invoice or debit notes is the due date of filing GST Return for September of next financial year or the date of filing of the relevant annual return. For more information on GST and related laws you are advised to contact Enterslice.

Read our article:GST and Input Tax Credit on Promotional Products