Input tax credit (ITC) is an essential element of the Goods and Services Tax (GST) regime. It is a mechanism that allows businesses to claim credit for the taxes they have paid on their purchases and use it to reduce their tax liability. This means that a business can offset the GST paid on inputs against the GST collected on outputs. However, there are certain cases where the input tax credit is not available. In this blog, we will discuss those cases.
Non-GST Supplies: Input tax credit is not available on purchases made from unregistered dealers or for goods and services that are exempt from GST. This means that if a business buys goods or services that are not subject to GST or are purchased from a supplier who is not registered under the GST, the input tax credit cannot be claimed.
Personal Use: Input tax credit is not available for goods or services that are used for personal use. For example, if a business purchases a car for the personal use of the owner, the input tax credit cannot be claimed on the purchase.
Blocked Credit: The GST law specifies certain goods and services for which input tax credit is blocked. This includes goods or services used for the construction of an immovable property (other than plant and machinery), goods or services used for personal consumption, membership of clubs, health and fitness centers, and travel benefits to employees on vacation. The input tax credit is also blocked on tax paid for goods or services used for activities that are not business-related.
Late Filing of Returns: Input tax credit cannot be claimed if GST returns are not filed on time. In case of a delay in filing returns, the input tax credit for the period will be forfeited, and the business will not be able to claim it.
Reversed or Not Paid: If the supplier of goods or services has not paid the GST collected to the government, the input tax credit cannot be claimed. This also applies in cases where the supplier has issued a tax invoice but subsequently reverses it.
let’s dive deeper into some of the cases where the input tax credit is not available.
Non-GST Supplies: Input tax credit is not available on purchases made from unregistered dealers or for goods and services that are exempt from GST. This means that if a business buys goods or services that are not subject to GST or are purchased from a supplier who is not registered under the GST, the input tax credit cannot be claimed.
For example, if a business purchases goods or services from a supplier who is not registered under GST, the supplier cannot charge GST on the invoice. This means that the business cannot claim the input tax credit on the purchase. Similarly, if the goods or services purchased are exempt from GST, the input tax credit cannot be claimed.
Blocked Credit: The GST law specifies certain goods and services for which input tax credit is blocked. This includes goods or services used for the construction of an immovable property (other than plant and machinery), goods or services used for personal consumption, membership of clubs, health and fitness centers, and travel benefits to employees on vacation. The input tax credit is also blocked on tax paid for goods or services used for activities that are not business-related.
The purpose of blocking input tax credits for certain goods and services is to ensure that businesses do not claim the input tax credits on expenses that are not related to their business. For example, if a business purchases health and fitness services for personal use, the input tax credit cannot be claimed. Similarly, if a business purchases goods or services for the construction of a building that is not used for business purposes, the input tax credit is not available.
Late Filing of Returns: Input tax credit cannot be claimed if GST returns are not filed on time. In case of a delay in filing returns, the input tax credit for the period will be forfeited, and the business will not be able to claim it.
Businesses need to file their GST returns on time to ensure that they do not lose out on input tax credits. If returns are not filed on time, the input tax credit for the period will be lost, and the business will not be able to claim it.
Reversed or Not Paid: If the supplier of goods or services has not paid the GST collected to the government, the input tax credit cannot be claimed. This also applies in cases where the supplier has issued a tax invoice but subsequently reverses it.
If the supplier of goods or services has not paid the GST collected to the government, the input tax credit cannot be claimed. Similarly, if the supplier issues a tax invoice and subsequently reverses it, the input tax credit claimed by the business will have to be reversed as well.
In conclusion
input tax credit is an important mechanism for businesses to reduce their tax liability under the GST regime. However, businesses need to be aware of the cases where the input tax credit is not available to ensure compliance with the law. Businesses need to seek professional advice to ensure that they claim input tax credit only where it is available and comply with the GST law.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Ask Question
Q1. What is an input tax credit?
Input tax credit (ITC) is a mechanism that allows businesses to claim credit for the taxes they have paid on their purchases and use it to reduce their tax liability. This means that a business can offset the GST paid on inputs against the GST collected on outputs.
Q2. When is an input tax credit not available?
The input tax credit is not available in certain cases, including purchases made from unregistered dealers, goods or services that are exempt from GST, goods or services used for personal consumption, goods or services used for construction of an immovable property (other than plant and machinery), membership of clubs, health and fitness centers, travel benefits to employees on vacation, late filing of GST returns, and if the supplier of goods or services has not paid the GST collected to the government.
Q3. Can input tax credit be claimed for goods or services used for personal consumption?
No, the input tax credit is not available for goods or services used for personal consumption. This includes purchases made for the personal use of the business owner, employees, or their families.
Q4. What is blocked credit under the GST law?
Blocked credit refers to goods and services for which input tax credit is blocked under the GST law. This includes goods or services used for the construction of an immovable property (other than plant and machinery), goods or services used for personal consumption, membership of clubs, health and fitness centers, travel benefits to employees on vacation, and goods or services used for activities that are not business-related.
Q5. What happens if GST returns are filed late?
If GST returns are filed late, the input tax credit for the period will be forfeited, and the business will not be able to claim it. Businesses need to file their GST returns on time to ensure that they do not lose out on input tax credits.
Q6. Can input tax credit be claimed on purchases made from unregistered dealers?
No, the input tax credit is not available on purchases made from unregistered dealers. This means that if a business buys goods or services from a supplier who is not registered under the GST, the input tax credit cannot be claimed.
Q7. What should businesses do to ensure compliance with the GST law?
Businesses should seek professional advice to ensure compliance with the GST law. The GST law is complex, and businesses need to be aware of the cases where the input tax credit is not available to ensure that they claim input tax credit only where it is available.
