“Input tax” has been defined in section 2 (57) of the MGL (Model GST Law) and section 2 (1) (d) of the IGST Act. Input tax in relation to a taxable person, means the (IGST and CGST) in respect of CGST Act and (IGST and SGST) in respect of SGST Act, charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7.
Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. In other words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases. Goods and Services Tax (GST) is an integrated tax system where every purchase by a business should be matched with a sale by another business. This makes flow of credit across an entire supply chain a seamless process.
a)IGST - IGST, CGST and SGST
b)CGST - IGST & CGST
c)SGST - IGST & SGST
Following are conditions for availing ITC,
At each stage of the supply chain, the buyer gets credit for the input tax paid, and they can use it to offset the GST that needs to be paid to the Centre and State governments.
Assume that there is a seller S and he sold his goods to B. Now B who is a buyer will be eligible to claim the input tax credit on purchases based on the invoices. So,
ITC can only be claimed for tax invoices and debit notes which are less than a year old. In any other case, the last date to claim ITC is the earlier of the following:
Under the GST Regime, the input tax credit of IGST and GST Compensation Cess is available to the importer. However, the input tax credit of Basic Customs Duty (BCD) would not be available. In order to avail ITC of IGST and GST Compensation Cess, an importer has to mandatorily declare GST Registration number (GSTIN) in the Bill of Entry. The Customs EDI system would be interconnected with the GST portal for the validation of ITC. Bill of entry in the non-edi locations would be digitised and used for validation of input tax credit provided by the GST portal.
Though input tax credit can be claimed by a person registered under GST for most inputs, some types of goods and services are not eligible for input tax credit claim. In this article, we look at such goods and services, which are not eligible for input tax credit under GST.
Motor Vehicles or Conveyances
Input tax credit can be claimed for motor vehicles or conveyance only when they are used for making a further supply of such vehicles or conveyances or transportation of passengers or imparting training or for transportation of goods. Hence, expenses related to the normal use of motor vehicles for office purposes cannot be claimed as an input tax credit.
Food, Beverages and Outdoor Catering
Expenses relating to food, beverages and outdoor catering can be claimed as input tax credit only when inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply. Hence, regular taxpayers would not be eligible for claiming input tax credit on expenses relating to food, beverages and catering.
Beauty Treatment, Health Services & Cosmetic and Plastic Surgery
Beauty treatment, health services, cosmetic and plastic surgery related expenses cannot be claimed as input except when inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or as an element of a taxable composite or mixed supply.
Similarly, expenses relating to membership of a club, health and fitness centre is not eligible for input tax credit.
Life and Health Insurance
Expenses relating to rent-a-cab facilities, life or health insurance can be claimed as input tax credit only when the Government notifies it as services which are obligatory for an employer to provide to its employees under law. Else, to claim input tax credit, the inward supply must have been used for making an outward taxable supply of the same category or as part of a taxable mixed supply.
Travel Benefits for Employees
Travel benefits extended to employees on vacation such as leave or home travel concession cannot be claimed as input tax credit.
Works Contract Services
Works contract services, when supplied for construction of an immovable property (other than plant and machinery), cannot be claimed as input tax credit. However, work contract services can be claimed as an input tax credit when it is an input service for the further supply of works contract service.
Construction of Immovable Property
Goods or services received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account or even when it’s used in the course or furtherance of business cannot be claimed as input tax credit. Under GST Act, construction includes re-construction, renovation, additions or alterations or repairs.
Non-Resident Taxable Person
Goods or services received by a non-resident taxable person except on goods imported by him is not eligible for input tax credit.
Know more about GST registration for non-resident taxable person.
Goods or services used for personal consumption is not eligible for input tax credit.
Lost or Stolen or Damaged Goods
Input tax credit is not available for goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Goods or services or both on which tax has been paid under the Composition Scheme will not be eligible for input tax credit. Also tax paid as interest, penalty or fine will not be eligible for input tax credit.