Special Cases under which ITC is Not Applicable

India implemented the Goods and Services Tax on July 1, 2017. The Input Tax Credit Mechanism of GST, which has been steadily developing into a well-structured taxing system, is a feature that differentiates it from the previous taxation system. With the taxes paid on purchasing business-related supplies, taxpayers can use the Input Tax Credit mechanism to lower their tax obligations on their sales against taxes already paid for business-related supplies.

However, there are some circumstances under GST in which taxpayers cannot use an input tax credit. These scenarios include the following:

Motor Vehicles and other Conveyance

ITC is not accessible on ships or aircraft, nor is it available when the specified motor vehicle is used to transport passengers and has a seating capacity of 12 or more plus the driver.

Except in the cases:

• If the specified vehicle is being utilised, ITC will be available. 

• Supply of additional cars, trucks, buses, ships, or planes.

• The transportation of passengers.

• Training to operate a vehicle, mode of transportation, ship, or aircraft.

• The transport of goods.

Foods, Outdoor Catering, Cosmetic Surgery, Health Services, Plastic Surgery

Input Tax Credit does not apply to Food, Beverages, Outdoor Catering, Cosmetic Surgery, Health Services, or Plastic Surgery.

Except if the category of inward and outward supply is the same or if the component is a part of mixed or composite supply under GST, the input tax credit will be applicable. 

Insurance, Repairs, and Maintenance for Motor Vehicles

The taxpayer is not permitted to make an input tax credit claim in situations involving general insurance, services, repairs, or maintenance of a motor vehicle, vessels, or drafts.

With the exception that if an engaged taxable person receives insurance, the ITC will be available for:

• The creation of such vehicles, ships, aeroplanes; or

• He has insured when providing ordinary insurance services for automobiles, ships, or aeroplanes.

• If there are any exceptions against the rules listed for cars, boats, and aeroplanes.

Membership in a Health Centre or a Fitness Centre

The ITC credit will not be granted if you have a membership to a club for a sport or any other activity or if you have attended yoga courses or a gym subscription.

Rent a cab, Life Insurances, Health Insurance

ITC is not offered for life, health, or rent-a-cab insurance.

There are some exceptions in this case. The ITC can be availed if:

• The current law in India makes it mandatory for employers to provide these services to their employees.

• If the category of goods and services for inward and outward supply is the same.

• If motor vehicles, vessels, or aircraft are leased, rented, or hired. In this case, the exceptions are the same as those for Motor Vehicles and Other Conveyances.

Travel benefits are extended to employees on vacations.

The input tax credit is not applicable to travel perks for employees on vacation, such as leaves or home travel concessions. 

However, an employee is qualified to submit an ITC claim in circumstances where taxes were paid for business travel.

Works Contract Services when supplied for construction of an immovable property.

ITC cannot be claimed for any services under a works contract. Similarly, ITC cannot be used to build immovable property. 

Except that ITC is offered when the input service is applied to work contract services further.

Goods or Services received by a taxable person for the construction of an immovable property

The taxpayer is not eligible to receive an input tax credit for constructing an immovable property on their dime. Similarly, ITC will not be accessible if such products or services are utilised to conduct business.  

Besides, ITC is accessible on inputs used to produce machinery and plant for personal use.

Goods or Services received by a non-resident taxable person

A non-resident taxpayer is not eligible for refunds under the GST ITC scheme. 

Besides that, ITC is available for items imported by a non-resident taxable person.

Goods or Services used for Personal Consumption

The ITC is not accessible if the goods, services, or both are utilised for personal use. This law's fundamental premise is that an input tax credit can only be claimed when tax has been paid on an outward supply of goods or services or will be paid in the future.

Goods Lost, Written off, Destroyed, or Stolen

ITC on such goods will not be available if they are distributed as free samples, lost, stolen, or destroyed.

In the case of Restaurant Services

Independent restaurants that charge 5% GST cannot claim ITC for their materials.

With room rates surpassing Rs. 7,500 and paying GST at an 18% rate, restaurants that are a part of hotels are eligible for ITC.

Goods or Services on which tax has been paid under section 10

The ITC on products or services for which the composition dealer has already paid the tax is unavailable.

In the above situations, the registered taxpayer is not eligible to claim an input tax credit.