According to section 17(5) of the CGST Act, 2017, there are some goods or services for which input tax credits can never be claimed, keep reading to learn more.
Let us understand what is Blocked Credit
Blocked Credit under GST refers to the supply of goods and services for which input tax credit is not available due to legal restrictions.
What is Input Tax Credit in GST?
Input tax credit means that when you pay tax on output, you can deduct the tax you already paid on inputs and pay the difference.
Conditions for availing ITC
The goods or services provided should only be used for business purposes, if it is used for personal consumption, ITC is not available.
The supplier files a tax invoice or debit note in Form GSTR-1, which appears on the Buyer's GSTR-2B form.
The buyer must furnish the GST returns in Form GSTR-3B.
Input tax credit can only be claimed before the 30th of November of the following year, or before the filing of Annual GST returns, whichever is earlier.
If goods are lost, stolen, or confiscated after purchase, ITC on such inward supply of goods is ineligible for ITC.
No ITC will be allowed if depreciation has been claimed on the tax portion of a capital goods (Assets) purchase.
Inputs that cannot be claimed for ITC even if used for business
Following are the Blocked ITC that cannot be claimed for ITC
Motor vehicles, aircraft, and vessels, as well as insurance repairs and maintenance performed on such MVs, aircraft, or vessels.*
Food and beverage, outdoor catering, beauty treatments.*
Works contract services.*
Input and Input service used for construction of immovable property.*
Inputs under composite scheme.*
Inputs for non-resident taxable person.*
* Subject to certain conditions
Definition of Motor Vehicles
A motor vehicle means, any mechanically propelled vehicle used on roads but does not include a vehicle running on fixed rails or a special vehicle used in a factory or an enclosed premises having less than four wheels with an engine capacity not exceeding 25 cubic centimeters.”
Grounds on which ITC can be claimed on Motor Vehicle
Input tax credit cannot be claimed on motor vehicles because they are normally included in the Blocked list of ITC, however, credit is available when they are used to make the following taxable supplies, namely:
Used by an registered person involved in the further supply of such motor vehicles; ( i.e. dealer or a supplier of Motor Vehicles)
Used by an registered person which is engaged in the business of transportation of passengers.
Registered person that provides driving instruction for such motor vehicles (i.e. motor driving schools)
Grounds on which ITC can be claimed on Vessels & Aircraft
Aircraft and vessels are in the blocked category, which means that ITC on them cannot be obtained; however, credit will be available when they are used to make the following taxable supplies, namely;
Used by a registered person that is involved in the further supply of such vessels or aircraft (i.e. dealer or supplier of vessels & aircraft)
Used by an registered person that is in the business of transporting passengers; or
Registered person that provides training on how to navigate such vessels; or
Registered person that provides training in the operation of such aircraft.
ITC can be claimed on Insurance, Repairs, maintenance done on Motor Vehicle, Aircraft and Vessel
Expenses for repairs or maintenance, or payment of insurance premiums on such assets that are already on the blocked ITC list, cannot be claimed as ITC. However, the input tax credit for such services will be available-
Expenses incurred by a taxable person who is engaged in manufacturing of such motor vehicles, vessels or aircraft; or
Expenses incurred by a taxable person who provides additional general insurance services in relation to motor vehicles, vessels, or aircraft insured by him.
Let us take an example
The ITC on automobiles purchased by a manufacturing company for the official use of its employees is blocked.
It is permissible to claim ITC on vehicles purchased by a car dealer for resale to customers.
Grounds on which ITC can be claimed on Food and beverages, outdoor catering
Let us understand with the help of an example
When a manufacturing company buys food to serve to its customers, the ITC on those purchases is blocked.
A manufacturing company with more than 250 employees that is registered under the Factories Act. They also have a canteen on the factory grounds. Input tax credit would be available for using the canteen services.
ITC can be availed for works contract services provided for the construction of immovable property?
If services are used to construct an immovable property, the ITC will be denied. Credit is available in the following cases:
(a) Where it is an input service for further supply of works contract service.
(b) Where it is supplied for plant and machinery construction.
Meaning of Plant & Machinery
The term "plant and machinery" refers to apparatus, equipment, and machinery that are fixed to the earth by foundation or structural support and are used for making outward supplies of goods or services or both, and includes such foundation and structural supports but excludes-
(a) Land, buildings, or other civil structures;
(b) Telecommunication towers; and
(c) pipelines installed outside the factory grounds.
Inputs for non-resident taxable person
Non-resident taxable persons who receive goods or services or both are ineligible to claim an Input tax credit. However, ITC on goods imported by a Non-Resident Taxpayer is allowed.
Inputs under composite scheme
When a person registered under the Composition scheme supplies goods or services or both to a taxable person registered under the Normal scheme, or vice versa, input tax credit is blocked for both taxable persons, the recipient and the supplier.
We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.
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