Cases when ITC is not available under GST

Cases when GST not available

During the GST Annual return and GST Audit following points to be taken so, that the actual tax liability and paid can be identified and opinion can be appropriate in the case.

Cases when ITC is not available under GST

1. Motor vehicles & conveyances

ITC is not available for Motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver).

Further, ITC is not available on vessels and aircraft.

Exceptions to ITC on motor vehicles/vessels/aircrafts

a) Supply of other vehicles or conveyances, vessels or aircrafts.

If you are in the business of supplying cars then ITC will be available.

b) Transportation of passengers

If you are providing transportation of passengers then ITC will be allowed on the vehicle purchased.

c) Imparting training on driving, flying, navigating such vehicle or conveyances or vessels or aircrafts, respectively.

A driving school purchases a car to give training to students. The school can claim ITC on the GST paid on the car.

d) Transportation of goods

ITC will be allowed on motor vehicles (and other conveyances) used to transport goods from one place to another. However, this is concerning other transporters and not goods transport agencies (GTA).

2. 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. Services of general insurance, servicing, repair and maintenance

No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in (1).

Exceptions to ITC on insurance, repair or maintenance

·         Same as expections mentioned for motor vehicles/vessels/aircrafts

·         where received by a taxable person engaged—

(I) In the manufacture of such motor vehicles, vessels or aircraft; or

(II) In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him

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

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

5. 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-

a. Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force

b. If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply

c. leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as those mentioned for (1).

6. Travel

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

ITC will be allowed for travel for business purposes. Please read our article to know more about the impact of GST on air fare and rail fare.  

7. 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.

8. 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. 

9. Composition Scheme

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

10. 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.

11. No ITC for personal use

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

12. Free samples and destroyed goods

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

13. 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.

14. 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.

Reversal of credit under certain circumstances

In the following circumstances the proportionate ITC will be reversed i.e. added to output tax liability in GSTR-2:

Where a normal taxpayer opts to pay tax under composition scheme or goods/services supplied by him become exempt

In case of supply of capital goods or plant and machinery, on which input tax credit has been taken

Every registered person whose registration is cancelled

Input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

Example:

Capital goods have been in use for 4 years, 6 month and 15 days.

Therefore, the useful remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods= C (say 10 lakhs)

Input tax credit attributable to remaining useful life= C *5÷60

=10,00,000*5÷60

=83,333

The above calculation must be done separately for integrated tax and central tax.

This amount must be reversed in (i.e. becomes part of output tax liability) and furnished in:

Where a normal taxpayer opts to pay tax under composition scheme or goods/services supplied by him become exempt- FORM GST ITC-03

Registration is cancelled- FORM GSTR-10

This must be accompanied by a certificate from a practicing chartered accountant or cost accountant.

In case of sale of capital goods, if the amount determined above is greater than the tax on transaction value of such sale, then the amount determined as above will be added to output tax liability. The details must be furnished in FORM GSTR-1.

Capital goods send on job work

ITC will be allowed to the principal manufacturer if a capital asset has been sent to a job worker for job work.

Condition

Such goods must be received back within a period of 3 years of being sent out.

Implications

If the goods are not sent back within 3 years, it shall be treated as a deemed supply from the date of sending the goods and tax would be payable along with interest for late payment of taxes.

For more information on ITC on job work please refer our article.

Please also read our article on ITC rules for common credit for inputs under GST.

From the above calculations, it is clear that ITC Rules for Common Credit under GST have been meant to be followed strictly to avoid interest and other recovery mechanisms.