GST was introduced to remove the cascading effect of taxes that existed under previous indirect laws. Any manufacturer, trader, retailer, supplier, e-commerce operator or any other person registered under the GST Act and with a valid GSTN can claim credit on purchases inward supplies received by him.

Updates related to ITC

• ITC cannot be claimed if it is restricted in GSTR-2B available under Section 38.
• Time limit to claim ITC on invoices or debit notes of a financial year is revised to earlier of two dates. Firstly, 30th November of the following year or secondly, the date of filing annual returns.
• Section 38 is completely revamped as Communication of details of inward supplies and input tax credit in line with the Form GSTR-2B. It lays down the manner, time, conditions and restrictions for ITC claims and has removed the two-way communication process in GST return filing on the suspended return in Form GSTR-2.

Items on which ITC are not available

Section 17(5) – The following items are ineligible and thus, no credit can be claimed on such purchases,

1. Motor vehicles & conveyances

Motor vehicles conveyances ITC is not available for Motor Vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons including the driver. However, ITC is available if the seating capacity of such motor vehicles exceeds 13 persons. Further, ITC is not available on vessels and aircrafts. For example, XYZ Co. buys a car for their business. They cannot claim ITC on the same. Exceptions to ITC on motor vehiclesvesselsaircrafts ITC will be available when the vehicle is used for making taxable supplies by the following. a Supply of other vehicles or conveyances, vessels or aircrafts. If you are in the business of supplying cars then ITC will be available. For example, a car dealer purchases a car for Rs. 50 lakh plus 14 lakh GST ignoring cess calculations. The same car was later sold for 70 lakhs along with Rs.

2. Food, beverages, club memberships and others

Food, beverages, club memberships and others ITC is not for the supply of following goods or services or both Food and beverages Outdoor catering Beauty treatment Health services Cosmetic and plastic surgery However, ITC will be available if the category of inward and outward supply is same or the component belongs to a mixed or composite supply under GST.

3. Services of general insurance, servicing, repair and maintenance

No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in 1.

4. Sale of membership in a club, health, fitness centre

No ITC will be allowed on any membership fees for gyms, clubs, etc. Example- X, a Managing Director has taken membership of a club and the company pays the membership fees.

5. Rent-a-cab, life insurance, health insurance

ITC will not be available to the company or Mr. X TC is not available for rent-a-cab, health insurance and life insurance. However, the following are exceptions, i. e. , ITC is available for- Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force. For example, assuming the government passes a rule for all employers to provide mandatory cab services to female staff in night shifts.

6. Travel

ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession. For example, ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed.

ITC will be allowed for travel for business purposes. Please read our article to know more about the impact of GST on airfare and rail fare. TC shall not be available for any work contract services.

7. Works contract

No ITC is available for goods services for construction of an immovable property on his own account. Even if such goods services are used in the course or furtherance of business, ITC will not be available. But this rule does not apply to the plant or machinery.

8. Constructing an immovable property on own account

ITC is available on inputs used to manufacture plant and machinery for its own use.

Example- Ajay Steel Industries constructs an office building for its headquarters. ITC will not be available.

Ajay Steel Industries also constructs a blast furnace to manufacture steel. ITC is available since it is a plant No ITC will be available for the goods services used for personal purposes and not for business purposes.

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