All About Eligible ITC in GST | Tally Solutions

Eligible ITC

  • 1. Ineligible ITC under GST
    • Category- I: ITC on motor vehicles under GST
    • Category- II: Inputs on goods and services availed
    • Category- III: Input tax credit on capital Goods under GST
    • Category- IV: Other cases of ineligible ITC as per section 17(5)

1. Ineligible ITC under GST

One of the major reasons for introducing GST is making the credit mechanism seamless so that there is no cascading effect of taxes. In GST ACT, the provisions relating to blocked input tax credits or blocked credits is covered under Sec 17(5).

Let us divide the Ineligible ITC credits into categories for better understanding of the same. The ITC rules under GST portrays the following items on which credit is not allowed in GST.

Category- I: ITC on motor vehicles in GST

As per GST ITC rules, ITC utilization on purchase of Motor Vehicles and other conveyance except when they are purchased and used for

  • Transportation of goods, or
  • Making the following taxable services: Used for
    • Further supply of such vehicles/ conveyances, or
    • Transportation of passengers, or
    • To conduct training for driving/ flying/ navigating such vehicles/ conveyances
    • Transportation of goods

The ITC utilization except for the above cases in respect of Capital Goods such as Motor Vehicles and other conveyance is restricted under GST.

Category- II: Inputs on goods and on services availed

Any supply of goods and services being the ones mentioned below, the ITC utilization is restricted in these cases as well which are

Inputs on goods Inputs on Services availed
  • Food and beverages
  • Outdoor Catering
  • Beauty Treatment
  • Health Services
  • Cosmetic and Plastic Surgery
  • Government notified services of obligatory nature for employer to employees such as
    • Renting of cab for employees
    • Life/health insurance scheme for employees

Note: As per the GST input tax credit rules, utilization of input tax credit is not allowed for the above-mentioned services, except in cases when such supply is used in outward supply of same category.

 
  • No credit shall be allowed for the following services:
    • Membership of club
    • Health and Fitness Centre
    • Travel Benefits to employees

Category- III: Input tax credit on capital goods under GST

Capital goods means goods, the value of which is capitalized in the books of account of the person claiming the ITC and which are used or intended to be used in the course or furtherance of business.

Under the following circumstances, the input tax credit availed on the capital goods needs to be reversed:

  • When taxpayers opt to pay tax under composition scheme.
  • When goods or services supplied by the taxpayer becomes exempted.
  • When there is supply of capital goods, on which input tax credit has been availed.
  • When the registration of registered tax payer has been cancelled Input tax credit involved in the remaining useful life in months will be computed on prorate basis, taking the useful life as five years.

Category- IV: Other cases of ineligible ITC as per section 17(5)

The input tax credit is not allowed under following cases:

  • Works Contract (other than plant & machinery)
  • Construction of Immovable Property (other than plant & machinery)
  • Where GST being paid under composition scheme
  • Goods or services or both received by a non-resident taxable person except on goods imported by him;
  • Goods lost or stolen/ written off/ disposed off by way of gift or free samples;
  • Tax paid after adjudication where there involves fraud etc. (Detention and Fraud Cases).



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