Input Tax Credit is a key differentiator of GST from previous tax regimes. For taxes paid on purchasing business-related supplies, taxpayers can claim Input Tax Credit to lower their tax obligations on their sales.

However, GST law mentions several cases where taxpayers are not allowed to claim ITC. In this article, we will discuss the cases where Input Tax Credit is not applicable. These scenarios include the following:

• Motor, vehicles and other conveyance
• Foods, Outdoor Catering, Cosmetic Surgery, Health Services, Plastic Surgery
• Insurance, Repairs, and Maintenance for Motor Vehicles
• Membership in a Health Centre or a Fitness Centre
• Rent a cab, Life Insurances, Health Insurances
• Travel benefits extended to employees on vacations
• Works Contract Services in cases where it is supplied for construction of an immovable property
• Goods or Services that have been received by a taxable person for the construction of an immovable property
• Goods or Services received by a non-resident taxable person
• Goods or Services used for Personal Consumption
• Goods Lost, Written off, Destroyed, or Stolen
• Restaurant Services
• Goods or Services on which tax has been paid under section 10

Motor Vehicles and Other Conveyance

ITC cannot be availed for motor vehicles that are used for transporting people, and have a seating capacity of 13 people or less, including the driver. However, ITC is available when the specified motor vehicle has a seating capacity of 13 or more plus the driver. Apart from this, ITC is not allowed for vessels and aircrafts.

There are exceptions in the above cases where ITC can be claimed. These are the following:

• If you are running a business that supplies cars. For example, Tata Motors can claim ITC on their cars.
• If you are using the vehicle for the transport of passengers. For example, a bus bought to transport passengers by a company that provides inter-city transport.
• If you provide training to operate a vehicle, mode of transportation, ship, or aircraft. E.g. a car purchased by a driving school to train students.
• If you use the vehicles to transport goods from one place to another.

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.

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
• When providing ordinary insurance services for automobiles, ships, or aeroplanes, he has insured.
• 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 Insurances

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 Extended to Employees on Vacations

ITC 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 in Cases where it is Supplied for Construction of an Immovable Property

ITC cannot be claimed for any services under a works contract. Similar to that, 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

Taxpayers cannot claim ITC for goods and services used to construct an immovable property on their own account, even if such goods and/or services are utilised to conduct business.  

However, ITC can be claimed on inputs used to produce plant and machinery. The plant and machinery, however, must be used by the company themselves.

Goods or Services Received by a Non-resident Taxable Person

Non-resident taxable persons are not eligible to claim ITC on any goods received by them. However, ITC is available for items imported by non-resident taxable persons.

Goods or Services used for Personal Consumption

ITC is not accessible if the goods, services, or both are utilised for personal use. The 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. In case you are using the same product for business and personal purposes, read our guide to ITC on Common Credit to calculate the correct ITC you can claim.

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.

Restaurant Services

Independent restaurants that charge 5% GST are unable to 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 GST 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.

Conclusion

Claiming ITC is subject to various conditions, and taxpayers must be aware of these provisions to avoid making any claims which are not allowed. Claiming ITC correctly can be a complicated process, requiring tedious compliances in many cases. It is advisable to use a GST Software to ensure proper compliance with GST regulations and optimise your tax benefits.