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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.
As per GST ITC rules, ITC utilization on purchase of Motor Vehicles and other conveyance except when they are purchased and used for
The ITC utilization except for the above cases in respect of Capital Goods such as Motor Vehicles and other conveyance is restricted under GST.
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
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:
The input tax credit is not allowed under following cases:
Payment Declaration Form – GST PMT – 08: Definition, Format and Rules