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Restrictions in availing of Input Tax Credit

Under the GST law, specific scenarios are outlined where taxpayers are ineligible to claim input tax credit. Hence it is not advisable to provide GST number at the time of said expenditures. These instances include:

  1. Motor Vehicles & Conveyances (Except for Goods or Passenger Transporting Business):
  • Input tax credit (ITC) is not available for motor vehicles used to transport persons with a seating capacity of 13 persons or fewer, excluding the driver.
  • ITC is permitted if the seating capacity of such vehicles exceeds 13 persons.
  • ITC is applicable when the vehicle is used for making taxable supplies related to food, beverages, club memberships, and others.
  • However, ITC is not available for the supply of specific goods or services, such as food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, unless the supply falls under a mixed or composite supply category.
  1. Services of General Insurance, Servicing, Repair, and Maintenance (Except for Goods or Passenger Transporting Business):
  • No ITC is allowed on general insurance, servicing, repair, and maintenance services related to motor vehicles, vessels, or aircraft.
  1. Sale of Membership in a Club, Health, Fitness Centre:
  • No ITC is allowed on membership fees for gyms, clubs, etc.
  1. Rent-a-Cab, Life Insurance, Health Insurance:
  • ITC is not available for rent-a-cab, health insurance, and life insurance, except in specific cases such as services mandated by the Indian Government for employers or when the category of inward and outward supply is the same or part of a mixed or composite supply.
  1. Travel:
  • ITC is not available for travel benefits extended to employees on vacation, leave, or home travel concession.
  1. Works Contract:
  • ITC is not available for any work contract services. ITC for the construction of an immovable property is not allowed unless the input service is used for further work contract services.
  1. Constructing an Immovable Property on Own Account:
  • No ITC is available for goods/services used for the construction of an immovable property for personal use.
  1. Composition Scheme:
  • No ITC is available for taxpayers under the composition scheme in GST law.
  1. Non-Residents:
  • ITC cannot be availed on goods/services received by a non-resident taxable person, except for goods imported.
  1. Personal Use:
  • No ITC is available for goods/services used for personal purposes and not for business purposes.
  1. Free Samples and Destroyed Goods:
  • No ITC is available for goods lost, stolen, destroyed, written off, or given as gifts or free samples.
  1. Restaurants:
  • Standalone restaurants, as per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, charging 5% GST cannot claim ITC on inputs.
  • Restaurants as part of hotels with room tariffs exceeding Rs. 7,500 continue to pay 18% GST and enjoy ITC.

These regulations aim to define the conditions under which input tax credit is not applicable to taxpayers under the GST framework. Consult Biswas Filing Service for details.

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