Apportionment of credit and blocked credits (Section 17)
Credit on goods/ services used partly for business and partly for non-business purposes
The credit on goods/ services used partly for business and partly for non-business purposes will be allowed proportionately to the extent it is attributable for business purposes.
⇒ In case allocation is not possible proportionately/ or common goods/service is used both for business/non-business purposes then – Common Credit attributable to non-business purpose will be equal to 5% of common credit.
Credit on goods/ services used partly for exempt and non-exempt supplies
⇒ Meaning of Exempted Supplies
‘Exempt Supplies’ for this purpose means all supplies other than taxable and zero-rated supplies and specifically include the following:
• Supplies liable to tax under reverse charge mechanism;
• Transactions in securities;
• Sale of land;
• Sale of building.
⇒ Allocation of credit –
The credit on goods/ services used partly for exempt and partly for non-exempt supplies will be allowed proportionately to the extent it is attributable for non-exempt supplies.
⇒⇒ In case allocation is not possible proportionately – The credit is to be allocated in the following manner
D = (E/F) x C
Where D = Credit attributable to exempt supplies
E = aggregate value of exempt supplies (all supplies other than taxable and zero rated supplies)
F = total turnover of the person in the tax period
C = Common Credit i.e. Total input tax in a period reduced by:
• Tax attributable exclusively for non-business purpose
• Tax attributable exclusively for exempt supplies
• Ineligible credits as per Section 17(5)
• Tax attributable exclusively for taxable supplies (including zero rated supplies)
⇒ In case of Banking Company/ Financial Institution
Banking Company/ Financial Institution engaged in supplying services by way of accepting deposits, extending loans or advances has the following options:
• Comply with above provisions regarding restriction of credits relatable to exempt supplies in the manner prescribed; or
• Avail 50% of the eligible input tax credit every month on inputs, capital goods and input services and the remaining 50% shall not be available.
The option exercised cannot be withdrawn in the same year. The restriction of 50% will not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.
Input tax credit on goods which are given by way of gift or free samples
As per section 17(5) (h) input tax credit is not available on goods disposed of by way of gift or free samples.
Input tax credit on inputs which become waste and is sold as scrap
- In the process of manufacture, if some inputs become waste and are sold as scrap, credit shall not be denied. Further, output tax shall be payable on sale of such waste/scrap.
- However, Section 17(5) (h) specifically restricts input tax credit on goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Therefore, if the goods have been destroyed in full, input tax credit will not be available.
⇒Input destroyed/pilfered, and shortage
Section 17(5)(h) specifically restricts input tax credit on goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Therefore, input tax paid on goods which are destroyed/pilfered, and shortage will not be eligible.
Input tax credit on use of mobile phones/laptops/as given to employees
Input Tax Credit is eligible on input tax paid on use of mobile phones/ laptops as they are covered under the definition of ‘inputs’.
Input Tax Credit on Motor Vehicle or Other Conveyances
- Section 17(5)(a) restrict input tax credit on motor vehicles/ conveyances
- Exception – when such motor vehicle/ conveyances is used for further supply of vehicles/ conveyances, transportation of passengers, imparting training or for transportation of goods.
⇒Tax paid on repair and maintenance of Motor Vehicles
Restriction placed under Section 17(5) of the CGST Act, 2017 is for Motor Vehicles and conveyance per se. There is no restriction for its repair and maintenance.
Therefore Tax paid on repair and maintenance of Motor Vehicles used for business purposes is eligible ITC.
Input Tax Credit on Construction/ renovation/ additions/ repairs of Immovable Property
- Input tax credit is not available on goods or services received by a taxable person for construction of an immovable property on his own account other than plant and machinery even when used in course or furtherance of business.
- The word “construction” includes reconstruction, renovation, additions or alterations or repairs to the extent of capitalization to the said immovable property. If the cost of interiors is capitalized towards the cost of immovable property, then it forms part of the cost of immovable property (Service apartment).
⇒Meaning of Plant and Machinery
Plant and Machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—
(i) land, building or any other civil structures;
(ii) Telecommunication towers; and
(iii) Pipelines laid outside the factory premises.
Rent-a-cab, life insurance and health insurance –
Input tax credit shall not be available on these services except –
a) Where the Government notifies these services are obligatory for an employer to provide to its employees under any law for the time being in force; or
b) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply .
Other Services where ITC shall not be available –
The following supply of goods or services or both
a) Food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery
exception – where an inward supply these goods or services or both used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply
b) Membership of a club, health and fitness centre
c) travel benefits extended to employees on vacation such as leave or home travel concession;