Understanding GST Input Tax Credit (ITC) Exclusions: Section 175 of CGST Act
When it comes to the Goods and Services Tax (GST), it's important to understand what qualifies for Input Tax Credit (ITC) and what doesn't. Section 175 of the Central Goods and Services Tax (CGST) Act, 2017, provides a detailed list of goods and services for which ITC is not available.
Key Takeaways
The criteria for eligibility for ITC under GST. The list of items where ITC is not allowed. Exceptions to the rule and logical explanations.Introduction to GST and ITC
For businesses in India, the Goods and Services Tax (GST) system is designed to ensure a seamless integration of tax into the supply chain. However, not all purchases and inputs are eligible for a credit against GST liability. Understanding these exclusions is crucial for compliance and accurate tax planning.
Eligibility for ITC
To avail of ITC in GST, businesses must meet the following criteria:
Be registered under GST. The goods or services must be part of a supply that is taxable under GST.10 Cases Where ITC is Not Available
The list of items where ITC is not available under GST is provided in Section 17, Subsection 5 of the CGST Act.
1. Non-Taxable Supplies
Goods or services that are exempt from GST or zero-rated do not qualify for ITC. For example, GST paid on non-taxable supplies, such as education, health services, and insurance, cannot be claimed as credit.
2. Capital Goods for Construction
Capital goods for the construction of immovable property, except for plant and machinery, are not eligible for input tax credit. This means that for the construction industry, the ITC for items like construction equipment and materials purchased can be claimed, but not for immovable properties like buildings or land.
3. Personal Consumption and Losses
Goods or services used for personal consumption, fractional or partial loss, theft, destruction, writing off, or gifting are not eligible for input tax credit. For instance, if a company writes off the value of goods that have been lost or destroyed, they cannot claim ITC for the GST paid on these items.
4. Financial Charges and Penalties
Interest, late fee, or penalties paid on the delay in the payment of tax are not eligible for input tax credit.
5. Purchases from Unregistered Suppliers
PICT is not available if the goods or services are purchased from an unregistered supplier. This includes goods or services purchased for resale as well.
6. Services Provided by Non-Resident Indians (NRIs)
ITC is not available for goods or services received by NRIs. However, ITC is available for goods imported by NRIs.
7. Excessive Time Lapse on Purchase
The ITC is not available for goods or services purchased more than 1 year ago for non-capital goods, and more than 3 years ago for capital goods, from the date of registration.
8. Composition Dealers
Goods or services purchased from composition dealers (turnover less than 1.5 crores) are not eligible for input tax credit.
9. Goods or Services Used for Personal Purpose
If the goods or services are used for personal purposes, no ITC is available. This applies to items like food and beverages, catering services, and personal healthcare services.
10. Taxes Paid Due to Assessment or Mis-statement
ITC is not available if the tax has been paid on account of an assessment or due to a willful mis-statement.
Broad Exceptions and Logical Exceptions
While these are the strict rules, there are some logical exceptions that explain why ITC is not available:
Construction Services
For construction and other works-related services, ITC is not available if the services are rendered by a person not engaged in the business of providing construction services. However, if a company engages in construction as a business, they can claim ITC.
Non-Taxable Services for Business Use
Services like beauty treatments, health services, and cosmetic/plastic surgeries are not eligible for ITC if they are used for purposes other than resupply. If the services are used for resupply, then ITC can be claimed.
Insurance Policies
Insurance policies can claim ITC if they are taken as an obligation of law.
Contact
If you have any further questions or need more clarification, feel free to contact me at 91-99331-72420.
For more detailed information on the CGST Act and GST compliance, you can visit the official GST portal: GST Musem.