Except for a small list of items provided under section 17(5) of CGST Act, 2017, ITC of tax paid on almost every input and input service used to supply taxable goods or services or both is allowed under GST.
As per Section 17(5) A registered person is not eligible to take input credits on GST paid on certain goods and services received by him which are mentioned in the Proviso. The negative list consists primarily of items of personal consumption, inputs used in the formation of an immovable property (except plant and machinery), telecommunication towers, a pipeline laid outside the factory premises, and so on. And taxes paid as a result of tax evasion being discovered.
Sec 17(5)(a) ITC related to Motor Vehicles
The ITC of GST paid on the purchase of a Motor Vehicle designed for transportation of people with a seating capacity of not more than 13 people (including the driver) is not allowable, even if such vehicle is used in the course or furtherance of business, except:
- If such a vehicle is classified as trade goods and further sold,
- If such a vehicle is used in the passenger transportation business, such as taxis or cabs,
- If such a vehicle is used to teach others how to drive it, like driving schools’ vehicles
- There are no restrictions on claiming ITC on vehicles used to transport goods.
- There are no restrictions on claiming ITC for vehicles that transport people but have a seating capacity of more than 13 people.
- Vehicles such as dumpers, forklifts, and other special-purpose vehicles are permitted if used in the course or further business.
Sec 17(5) (aa) ITC on Vessels and Aircrafts
ITC on vessels and aircraft is not permitted, even if such vehicles are used in the course or further business, unless used for the below-mentioned purposes.
- For the transport of goods
- For passenger transportation
- Providing instruction on how to navigate such vessels or
- imparting knowledge on how to fly such aircraft
- Motor vehicles, vessels, or aircraft, as well as ancillary services related to such vehicles, are not eligible for ITC:
- General Insurance
- Parts & components of such vehicles
- Servicing, repair, and upkeep
- Leasing, renting or hiring motor vehicles, ships, or aircraft.
Sec 17(5)(b) The following services taken up are not allowed for availing ITC:
- Food and beverages,
- outdoor catering,
- beauty treatment,
- health services,
- cosmetic and plastic surgery,
- leasing, renting, or hiring the aforementioned motor vehicles, vessels, aircraft,
- life insurance, and health insurance, unless otherwise specified.
EXCEPT WHERE: An inward supply of these is used to make an outward taxable supply of the same category, or it is part of a taxable composite or mixed supply.
Sec 17(5)(c) Participation in a club, health club, or fitness center through subscription fee
Sec 17(5)(d) Employees on vacation are entitled to travel benefits in accordance with the company’s travel policies.
Note: ITC will be allowed for 17(5)d if the employer provides such activities to employees to comply with the law in effect at the time.
Sec 17(5)(e) Works contract services for the construction of an immovable property
Works contracts provide services to build or renovate an immovable property. ITC on such services is not permitted unless used for further supply of such services, or the immovable property is plant and machinery.
Example: To serve the clients for whom the contractor is building the house, the contractor hires an interior designer from a firm. ITC is available.
Sec 17(5)(f) A taxable person receives inward supplies to construct immovable property (other than plant and machinery) on his behalf, even if used in the course or furtherance of business.
Sec 17(5)(g) Purchases subject to taxation under Section 10’s composition scheme
Sec 17(5)(h) Except for goods imported by him, inward supplies received by a non-resident taxable person
Sec 17(5)(i) Personal consumption of goods and services
Sec 17(5)(j) Goods that have been lost, stolen, destroyed, written off, or disposed of as a gift or free sample.
Sec 17(5)(k) Tax paid under section
- Section 74: determination of tax not paid short paid or erroneously refunded or input tax credit wrongly availed or utilized by the reason for fraud or any willful misstatement or suppression of facts.
- Section 129: detention, Seizure, and Release of Goods and Conveyances in Transit
- Section 130: Confiscation of Goods, or Conveyance and Levy of Penalty
Section 17(5) includes a list of ineligible goods or services, or both, and such transactions are frequently the source of any registered person receiving incorrect ITC. During ITC reconciliation, this type of ITC bifurcation is required. Finsights is a platform that enables its users to track ITC more quickly and accurately. It automates the entire ITC reconciliation process and reduces human-caused errors. Through our 7-day trial option, you can experience the quickest way to reconcile your GST ITC with GSTR-2A & 2B. Visit Right Now!