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