Under the CGST Act, The amount of GST paid on every input or input services that were used for the supply of taxable goods or services or both is allowed as Input Tax Credit(ITC).
Although some exceptions of the above statement are also there, which have been specified in Section 17(5) of the CGST Act, 2017. In this article, we will understand such list in detail.
Normally the list contains the supplies which have been made for personal consumption or related to immovable property or the supplies in which there were the chances of tax evasion etc. Now, let’s understand each point in simple language:
1. Motor Vehicle and Conveyance
If the supply has been made with regard to a motor vehicle or conveyance then the GST paid on such supply shall not be allowed as ITC. However, there are certain exceptions. That means if the supply has fallen under the following conditions then ITC would be allowed to the taxable person and these supplies are:
- Transportation of goods or
For Example, Company has purchased a truck for the transportation of goods, the GST paid on the purchase of such truck shall be allowed as ITC.
- Transportation of Passengers or
For Example, A cab service shall be allowed ITC on a car purchased for use as cabs
Example2: ITC on cars purchased by a manufacturing company for official use of its employee is blocked. However, ITC on cars purchased by a company engaged in renting out cars for transportation of passengers is allowed.
- Inward supply was taken for making the further supply of vehicle or conveyance or
For Example: If the car dealer has purchased the car and paid GST on such purchase then such GST shall be allowed to the car dealer as input tax credit because such car dealer shall use such cars for further supply.
- Giving training on driving, flying, etc.
For Example: For Example, ITC on cars purchased by a car driving school is allowed.
2. Personalized Services:
ITC would not be available on the following supplies:
- Food & Beverages
- Outdoor catering
- Beauty treatment service
- Health service
- Cosmetic & plastic surgery
- Life insurance
- Health insurance service
- Rent a Cab
In all the above services, the no ITC shall be available to the supplier however like the motor vehicle, here we have some exceptions to above that means if any of the following conditions are satisfied then the ITC of above services shall be available.
- If the supply is being made to a similar line of business. For Example: Although ITC on Life insurance policy ITC shall not available but if the LIC has taken reinsurance from ICICI insurance then the LIC shall be eligible for taking the credit of GST, charged by the HDFC on his invoice.
- If the government has made it compulsory for the taxable person to make such a supply. For Example: If the company is employing women at night shift and the government has made it obligatory to provide the cabs to women for a night shift then such employer shall be eligible for taking the ITC on the GST paid on such supply. Hence, Even though, ITC on renting a cab is not available but in the above case, the employer shall be eligible to take the ITC on the GST charged by the cab entity.
For Example AB & Co. a caterer of Delhi has been awarded a contract for catering in a marriage to be held at Mumbai. The firm has given the contract for the supply of snacks, to be served in the marriage, to CD & Sons, a local caterer of Mumbai. ITC on such outdoor catering services availed by AB & Co. is allowed.
ITC on outdoor catering services availed by a company, for a team development event organized for its employee is blocked.
ITC on outdoor catering service availed by a company to run a canteen in its factory. The Factories Act, 1948 requires the company to set up a canteen in its factory. ITC on such outdoor catering is allowed.
3. Membership of club, Health or Fitness center, Travel Benefit to an employee for their personal trip:
No ITC is available in these services
4. Works Contract Services:
It means the amount charging in respect of goods and service at a single price and the resultant property is Immovable property.
Since it works contract involves both goods and services hence it is specifically mentioned in the para 6 of Schedule II, works contract services are considered to be a supply of services.
ITC shall not be available when
When WORKS CONTRACT Service taken by an end-user for construction of the immovable property.
- When the service is taken for or related to plant and machinery then ITC shall be available to the registered person.
- When the service is provided to a similar line of business then also ITC shall be available. That means, if it is an input for further supply of works contract service then ITC shall be available. (For example, DLF providing a service to Amarpali as subcontractor then Amrapali shall be eligible to take the credit on the GST charged by DLF)
5. Other Supplies on which ITC shall not be available
- Any Supplies made by a person registered under Composition Scheme
- Any Supplies made by a person who is a Non-Resident Taxable Person
- Goods or services used for personal consumption
- Goods which has been lost, destroyed, theft or disposed of by way of gift or a free sample.
6. Supplies received by Taxable person for Immovable Property(other than plant and machinery)
Goods or Services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including such goods or services or both are used in the course or furtherance of business;
*It is to be noted that the credit is blocked only for the construction of the immovable property and not on the routine repairs to the immovable property.