Know about GST Input Tax Credit with Illustrations

Topics covered in this article are as follows:

1. What one Should know before the beginning study of Input Tax Credit Provisions
2. What are the Conditions for taking the input tax credit.
3. How input tax credit is allowed for payment of CGST, SGST, UTGST and IGST.

Supplier of goods or services or both can take credit of input tax charged on any supply of goods or services or both to him which are used in the course of his busniess. These provisions are given by sections 16 to 21 and rules 36 to 45. This chapter briefly covers these rules along with appropriate illustrations.

1. What one should know before beginning study of Input Tax Credit Provisions

To avoid cascading effect, input tax credit is available. It is based on VAT concept of allowing input tax credit on inputs, input services and capital goods. Output supplier of goods/services can avail credit of CGST, SGST, UTGST and IGST charged by input supplier of goods, services and capital goods. Before beginning study of input tax credit provisions, one should know the following –

Input means any goods other than capital goods†. Capital goods means goods, value of which is capitalised in books of account. Input tax credit on capital goods can be availed at one shot (i.e., 100 per cent‡ at the time of capitalisation in books of account). There is no requirement to defer some portion of input tax credit on capital goods to the subsequent year. In other words, there is no distinction between inputs and capital goods under GST for the purpose of availment of input tax credit.

Basic condition for availing input tax credit is that input/input services/capital goods are used (or intended to be used) in the course of or furtherance of business. There are a few more conditions which are discussed in para 493.

In GST regime, IGST is levied on inter-State supply. CGST and SGST/UTGST are levied on intra-State supply. These taxes on inward supply are creditable. However, one has to keep in mind that there is no centralized registration under GST. Registration is required in all States/Union Territories from where one makes taxable supplies of goods/services. Each registration is treated as distinct person. Consequently, input tax credit of one State cannot be used to set off output GST liability of another State.

GST which is paid by recipient of supply under reverse charge mechanism during the current month, will become eligible input tax credit.

Tax on inward supply paid by a person who is registered under Composition Scheme/Alternative Composition Scheme, is not eligible for input tax credit.

Input SGST credit cannot be used to pay output CGST. Likewise, input CGST credit cannot be used to pay output SGST. Barring this limitation, input tax credit can be used to pay any output tax liability. For instance –

• IGST input credit can be used to set off output liability of IGST/CGST/SGST (in the same sequence).
• CGST input credit can be used to set off output liability of CGST/IGST.
• SGST input credit can be used to set off output liability of SGST/IGST.

Input tax credit is available only when GST is leviable on outward supply of goods/services. To put it differently, if GST is not leviable on outward supply of goods/services, input tax credit is not available. Those transactions where input tax credit is not available (because outward supply of goods/services is exempt) can be termed as exempt transactions. There are certain output supplies which are “zero rated”. In such cases, GST is not payable on outward supply (because applicable rate is zero) even then input tax credit is available. The following transactions are zero rated transactions –

• Export of goods/services.
• Supply of goods/services to special economic zone (SEZ).

These two supplies are zero rated supplies (applicable GST rate is zero). In the case of zero rated supplies, input credit is available. However, input credit is not available in the case of exempt transactions.

Check out GST Input Tax Credit which  provides complete guidance on Input Tax Credit, Refund of Input Tax Credit & Export issues relating to Input Tax Credit. It also incorporates various issues related to Input Tax Credit such as availment, reversal, refund, etc.

Provisions Illustrated

X Ltd. manufactures electric-detonators in Maharashtra for domestic and export markets. Raw material is supplied by different persons located in Gujarat and Tamil Nadu. GST rate is 18 per cent. The following information is given by X Ltd. for January 2021 –

– Supply of 10,000 pieces at the rate of Rs. 120 to Y Ltd. of Kerala.

– Export of 25,000 pieces at the rate of Rs. 140 to A Inc., Holland.

– Input credit available in electronic credit ledger (on inputs/input services procured from Gujarat/Tamil Nadu) : Rs. 1,50,000 (Situation 1) or Rs. 2,90,000 (Situation 2).

In this case, GST payable by X Ltd. will be as follows –

	Situation 1	Situation 2
	Rs.	Rs.
IGST on supply of 10,000 pieces to Y Ltd. [18% of (Rs. 120 × 10,000)]	2,16,000	2,16,000
GST on export to A Inc., Holland	Nil	Nil
GST on outward supply for January 2021	2,16,000	2,16,000
Less: Input tax credit on input goods/services available in electronic credit ledger	1,50,000	2,90,000
Amount payable by X Ltd. in electronic cash ledger	66,000	–
Refund which can be claimed for excess credit (*actual quantification depends upon rule 89)	–	74,000*

In the aforesaid two cases, there is no GST on exported goods (no GST on input as well as output).

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Goods/services are purchased. Benefit of input tax credit has been taken. Out of goods/services so acquired, taxpayer makes taxable supply as well as exempt supply. In such a situation, proportionate input tax credit (which he has already availed) pertaining to exempt supply, shall be reversed (formula for reversal of input tax credit is given in GST Rules). Similar reversal is required when capital goods are used for making taxable and non-taxable supplies.

Entire input tax credit is available even if a part of input goes in waste or by products like sludge which is not taxable.

Input credit is available as soon as inputs/input services are received (there is no need to wait till these inputs are actually used in production or actually sold). Moreover, entire input tax credit forms a common pool (law does not require invoice to invoice co-relation between input and output).

“Input tax” is defined by section 2(62). According to this definition, “input tax” in relation to a registered person means CGST, IGST, UTGST on supply of goods/services to him. Further it includes the following –

• IGST charged on import of goods.
• CGST/IGST/SGST/UTGST payable on reverse charge mechanism.

However, it does not include tax paid under Composition Scheme/Alternative Composition Scheme.

2. What are the conditions for taking Input Tax Credit?

One has to satisfy the following conditions –

Registered person – Input tax credit is available only to a registered person. Moreover, it is available in respect of input supplies of goods/services which are used (or intended to be used) in the course (or furtherance) of the business of the person who wants to claim the benefit of input tax credit. To avail the benefit of input tax credit, it should be credited in the electronic credit ledger.

Tax invoice – The input tax credit shall be availed by a registered person (including the Input Service Distributor), on the basis of any of the following documents –

• An invoice issued by the supplier of goods/services.
• An invoice issued (when tax is payable by the registered dealer under reverse charge mechanism).
• A debit note issued by a supplier.
• A bill of entry (or any similar document prescribed under the Customs Act) for the assessment of IGST on imports.
• An Input Service Distributor invoice (or Input Service Distributor credit note or any document issued by an Input Service Distributor).

Uploading – Input tax credit shall be availed by a registered person only if all the applicable particulars (as specified in rules pertaining to issue of tax invoice) are contained in the aforesaid document and the relevant information is uploaded in Form GSTR-2 by such person. However, uploading of Form GSTR-2 has been suspended ever since the commencement of GST.

RESTRICTIONS IMPOSED BY RULE 36(4) – Rule 36(4) has been inserted with effect from October 9, 2019. To understand the implication of rule 36(4), one has to understand the mechanism of filing Form GSTR-1 by input supplier and reflection of this data in Form GSTR-2A of the recipient.

Form GSTR-1 – GSTR-1 is the return to be furnished for reporting details of all outward supplies. GSTR-1 is to be filed by all normal taxpayers who are registered under GST. It is to be filed monthly (in some cases, quarterly).

Form GSTR-2A – On the basis of data uploaded by input supplier in Form GSTR-1, Form GSTR-2A is generated for the recipient. For the recipient, data of GSTR-2A is auto-populated based upon GSTR-1 uploaded by all input suppliers of a dealer for a tax period. GSTR-2A is a read-only return and no action can be taken.

Legal position before insertion of rule 36(4) – Before insertion of rule 36(4) (i.e., before October 9, 2019), one can take input tax credit on the basis of suppliers’ invoices (regardless of data appearing in Form GSTR-2A).

Legal position after insertion of rule 36(4) – Rule 36(4) has been inserted with effect from October 9, 2019. After insertion of rule 36(4), one cannot take input tax credit without examining the credit available in Form GSTR-2A. Under rule 36(4), input tax credit pertaining to input invoices/debit notes which is available to a registered dealer for a tax period cannot exceed the following –

• 120 per cent of eligible credit available in his Form GSTR-2A (applicable on or after October 9, 2019 but before January 1, 2020); or
• 110 per cent of eligible credit available in his Form GSTR-2A (applicable on or after January 1, 2020 but before January 1, 2021); or
• 105 per cent of eligible credit available in his Form GSTR-2A (applicable on or after January 1, 2021).

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Provisions Illustrated

I. X Ltd. is a registered GST dealer. It gives the following information pertaining to January 2021 –

Outward supply – During January 2021, GST on outward supply made by X Ltd. is Rs. 54,90,000 (it is aggregate GST liability of 59 invoices issued by X Ltd. during January 2021).

Inward supply – During January 2021, X Ltd. receives 30 tax invoices (pertaining to taxable inward supply of inputs, input services and input capital goods). Input tax credit pertaining to these invoices is as follows –

• Eligible input tax credit (29 invoices) – Quantum of eligible input tax credit for January 2021 as per records of X Ltd. is Rs. 46,20,000.
• Ineligible input tax credit (1 invoice) – X Ltd. has purchased a car during January 2021 for its executives (GST paid is Rs. 7,80,000).

Inward supply subject to reverse charge – X Ltd. is also eligible for input tax credit of Rs. 60,000 pertaining to GST of January 2021 (it is paid by X Ltd. on inputs which are under reverse charge mechanism).

Credit reflected in Form GSTR-2A – Eligible input credit reflected in Form GSTR-2A for January 2021 is –

• Situation 1 – Rs. 36,00,000 (total invoices : 24).
• Situation 2 – Rs. 44,00,000 (total invoices : 26).
• Situation 3 – Rs. 45,00,000 (total invoices : 27).
• Situation 4 – Rs. 46,00,000 (total invoices : 28).

Moreover, GSTR-2A of January 2021 of X Ltd. shows input tax credit pertaining to the car purchased by X Ltd. for its executives (amount of input tax as per GSTR-2A is Rs. 7,80,000).

Input tax credit as per rule 36(4) – Number of invoices (given in above data) is not relevant for calculating input tax credit. Input tax credit (pertaining to car) is not considered, as it is blocked by section 17(5)(a). It is not eligible for input tax credit even if it is reflected in GSTR-2A. Quantum of input tax credit available as per rule 36(4) to X Ltd. is as follows –

		Situation 1	Situation 2	Situation 3	Situation 4
		Rs.	Rs.	Rs.	Rs.
Eligible input tax credit as per records of X Ltd.	(a)	46,20,000	46,20,000	46,20,000	46,20,000
Eligible input tax credit as reflected in GSTR-2A	(b)	36,00,000	44,00,000	45,00,000	46,00,000
105% of (b)	(c)	37,80,000	46,20,000	47,25,000	48,30,000
Eligible input tax credit available for January 2021 after insertion of rule 36(4) [(a) or (c), whichever is lower]	(d)	37,80,000	46,20,000	46,20,000	46,20,000
Amount restricted or blocked for January 2021 [after insertion of rule 36(4)] [(a) – (d)]	(e)	8,40,000	Nil	Nil	Nil

Amount payable by X Ltd. for January 2021 in cash – It is as follows –

• Under forward charge – X Ltd. will have to pay in cash Rs. 54,90,000 minus eligible input tax credit as per rule 36(4) [i.e. (d)] minus input tax credit pertaining to amount paid under reverse charge (i.e., Rs. 60,000).
• Under reverse charge – Rs. 60,000 is payable in cash under reverse charge.

II. X Ltd. can claim the blocked input tax credit [i.e., (e)] in any of the succeeding months provided details of requisite invoices are uploaded by the suppliers in their GSTR-1 and subsequent reflection (i.e., auto-populated) of the same in GSTR-2A of X Ltd. Suppose, in Situation 1, data submitted by the suppliers of X Ltd. (pertaining to January 2021 supplies) in their GSTR-1 for February 2021 which is auto-populated in GSTR-2A of X Ltd. (for February 2021) shows eligible input tax credit of Rs. 4,00,000 (Case 1) or Rs. 9,00,000 (Case 2). Amount available as eligible input tax credit to X Ltd. for the month of February 2021 (pertaining to January 2021 input supplies) will be as follows –

		Case 1	Case 2
		Rs.	Rs.
Eligible input tax credit as reflected in GSTR-2A of February 2021 (pertaining input supplies of January 2021)	(f)	4,00,000	9,00,000
105% of (f)	(g)	4,20,000	9,45,000
Input tax credit available in February 2021 [pertaining to amount restricted or blocked for January 2021 under rule 36(4)] [i.e., (g) or (e), whichever is lower]	(h)	4,20,000	8,40,000
Amount restricted or blocked even after GSTR-2A of February 2021 [(e) – (h)]	(i)	4,20,000	Nil

Note – Amount, as shown in (i) above, can be claimed as input tax credit in March 2021 (or any subsequent month) provided relevant data of invoices/debit notes is uploaded by the suppliers of X Ltd. in their GSTR-1. As and when, invoices/debit notes are uploaded by suppliers to the extent of GST of Rs. 4,00,000 (i.e., Rs. 4,20,000 ÷ 1.05), X Ltd. will be able to claim full credit of Rs. 4,20,000.

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CUMULATIVE RECONCILIATION FOR LIMITED PERIOD UNDER RULE 36(4) – The above provisions of rule 36(4) shall apply cumulatively for the period April, May and June 2021 and the return in Form GSTR-3B for the tax period June 2021 (or quarter ending June 2021) shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the above conditions. The same is illustrated below –

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Provisions illustrated

The following information is noted from the records of X Ltd. (a registered GST dealer) –

(Rs. in lakh)

Different months	Eligible input tax credit  as per records of X Ltd. available to it under GST regulations [ignoring rule 36(4)]	Input tax credit actually availed by X Ltd. in GSTR-3B of the respective month	Invoices on which input tax credit is eligible as uploaded by suppliers of X Ltd. in Form GSTR-1 for the relevant tax period and reflected in Form GSTR-2A of X Ltd.
April 2021	70	60	52
May 2021	60	50	30
June 2021	80	See Note	78
Total of April – June 2021	210	168	160

Note – In the above case, maximum eligible input tax credit in terms of rule 36(4) for the months of April 2021 to June 2021 is 105% of Rs. 160 lakh (which comes to Rs. 168 lakh). In other words, for these months X Ltd. cannot avail input tax credit of more than Rs. 168 lakh. However, it has actually claimed input tax credit of Rs. 110 lakh (i.e., April 2021 : Rs. 60 lakh + May 2021 : Rs. 50 lakh). Therefore, input tax credit of Rs. 58 lakh (i.e., Rs. 168 lakh – Rs. 110 lakh) would be available for June 2021.

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OTHER POINTS – The following additional points pertaining to rule 36(4) are relevant –

• • Restriction of 105 per cent‡ is not supplier wise – The restriction imposed by rule 36(4) is not supplier wise. The credit available under rule 36(4) is linked to total eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers.
  • Ineligible input tax credit – The calculation of 105 per cent‡ is based on only those invoices which are otherwise eligible for input tax credit. Accordingly, those invoices on which input tax credit is not available (or blocked) under any of the provisions [maybe given by section 17(5) or any other section/rule] are not be considered for calculating 105 per cent‡ of the eligible credit available.
  • Separate restriction – The above restriction of rule 36(4) is applicable even in SGST. Consequently, the limit of 105 per cent‡ shall apply separately for CGST, SGST/UTGST and IGST and not on total input tax credit.

Fraud – No input tax credit can be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, wilful misstatement or suppression of facts.

Receipt of goods/services – Input tax credit is available only if the registered person has received goods/services. For this purpose, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to an agent of recipient (or any other person on the direction of such registered person). If goods are delivered to such person before or during movement of goods (either by way of transfer of documents of title to goods or otherwise), it shall be deemed that registered person has received goods. Likewise, it shall be deemed that the registered person has received services where services are provided by the supplier to any person on the direction of, and on the account of, such registered person.

Where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment.

Time-limit to avail input tax credit – Input tax credit is available as soon as goods/services are received. However, a registered person shall not be entitled to take input tax credit in respect of any invoice (or debit note) for supply of goods/services after –

• the due date of furnishing of the return under section 39 for the month of September† (following the end of financial year to which such invoice pertains); or
• furnishing of the relevant annual return,

whichever is earlier.

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Provisions illustrated

X Ltd. is a registered person under GST. It has received goods/services on November 12, 2020 (eligible input tax credit is Rs. 1,12,500). Credit of this input tax can be availed at any time after November 12, 2020. However, it cannot be claimed after –

a. October 20, 2021 (i.e., due date of furnishing of return of GST for September 2021); or

b. date of filing of annual return for the financial year 2020-21 (due date is December 31, 2021),

whichever is earlier.

If annual return for 2020-21 is uploaded on December 31, 2021, aforesaid tax credit can be claimed on or before October 20, 2021. Conversely, if annual return is uploaded on October 15, 2021, the aforesaid tax credit can be claimed on or before October 15, 2021.

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Failure to make payment to supplier of input goods/services – If above conditions are satisfied, the recipient of input goods/services can avail input tax credit (as soon as goods/services are received and relevant amount is credited in electronic credit ledger). Law requires that recipient of input goods/services should make payment to the supplier within 180 days from the date of issue of invoice by the supplier. If payment is not made within 180 days, input tax credit will have to be reversed (this rule is not applicable in case supply is obtained without consideration in cases discussed in para 414.2. Further this, rule is not applicable in the case of supplier’s obligation met by the recipient as discussed in para 465.1). The relevant provision is explained in a case study given below.

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Provisions illustrated

X Ltd. is a registered person under GST. It has received goods/services from A Ltd. vide invoice dated July 20, 2019 [value of input taxable supply : Rs. 1,00,000, GST on input (i.e., IGST or CGST + SGST) : Rs. 18,000]. This input tax is credited in electronic credit ledger. X Ltd. avails the benefit of credit for payment of tax for September 2019. Law requires that X Ltd. should make payment of Rs. 1,18,000 to A Ltd. on or before January 16, 2020 (i.e., within 180 days from July 20, 2019). The following consequences should be noted if X Ltd. makes payment after January 16, 2020 (suppose, actual payment is made on May 18, 2020) –

1. 1. X Ltd. will have to show Rs. 18,000 as output tax for February 2020 (this information will have to be uploaded in the return of February 2020).
   2. X Ltd. will have to pay interest at the rate of 18 per cent per annum from July 20, 2019 till the date of payment of tax of Rs. 18,000.
   3. X Ltd. can re-avail Rs. 18,000 as input credit on May 18, 2020 (i.e., the date of payment of Rs. 1,18,000 to A Ltd.). Time-limit discussed in para 493.6 is not applicable for utilisation of this re-availed input tax credit.

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Tax component of capital goods on which depreciation is claimed under income-tax – Where the registered person has claimed depreciation on GST component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, the input tax credit on the said GST component shall not be allowed.

Items not eligible for input credit – Input tax credit is available on almost all inward supply of goods/services used for making outward taxable supply. However, a negative list of a few items is given by section 17(5). This negative list is given below –

Section	Input credit not available	Para No.
17(5)(a)	Motor vehicles for transportation of persons having approved seating capacity of 13 (or less) persons (including the driver) (subject to a few exceptions)	493.9-1
17(5)(aa)	Vessels and aircraft (subject to a few exceptions)	493.9-2
17(5)(ab)	Services of general insurance, servicing, repair and maintenance relating to above motor vehicles, vessels or aircraft (subject to a few exceptions)	493.9-3
17(5)(b)(i)	Supply of goods/services pertaining to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to above (subject to a few exceptions)	493.9-4
17(5)(b)(ii)	Membership of club, health and fitness centre	493.9-5
17(5)(b)(iii)	Travelling benefits to employees on vacation such as LTC or home travel concession (subject to a few exceptions)	493.9-6
17(5)(c)	Works contract services when supplied for construction of an immovable property (other than plant and machinery) (subject to a few exceptions)	493.9-7
17(5)(d)	Goods/services received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods/services are used in the course or furtherance of business	493.9-8
17(5)(e)	Goods/services on which tax has been paid by a person covered by Composition Scheme/Alternative Composition Scheme	493.9-9
17(5)(f)	Goods/services received by a non-resident taxable person (except on goods imported by him)	493.9-10
17(5)(g)	Goods/services used for personal consumption	493.9-11
17(5)(h)	Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples	493.9-12
17(5)(i)	Any tax paid in accordance with the provisions of sections 74, 129 and 130	493.9-13

MOTOR VEHICLES FOR TRANSPORTATION OF PERSONS [SEC. 17(5)(a)] – If a person acquires a motor vehicle for transportation of persons (having approved seating capacity of 13 persons or less, including driver), input tax credit is not available. This rule is applicable even if such motor vehicle is used for the purpose of carrying on his business or profession. However, when such motor vehicle is used for making the following taxable supplies, input tax credit is available –

a. further supply of such motor vehicles,

b. transportation of passengers; or

c. imparting training on driving such motor vehicles.

• Similar rule for motor vehicle taken on lease – The above rules are also applicable when motor vehicle is not purchased but taken on lease [sec. 17(5)(b)(i)].
• Similar rule for input services of general insurance, servicing, repair and maintenance of motor vehicle – The above rules are also applicable for input services pertaining to motor vehicle (being input services of general insurance, servicing, repair and maintenance) [sec. 17(5)(ab)].

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Provisions illustrated

X (or X Ltd.) is registered under GST from Andhra Pradesh. He/it purchases a motor vehicle on April 6, 2020. GST paid at the time of acquisition is Rs. 9,10,000 (it is total of CGST, SGST and GST cess). The point for consideration is whether X (or X Ltd.) can claim input tax credit of Rs. 9,10,000 in the following situations –

Situation	Type of motor  vehicle	Seating capacity as per registration certificate (including driver)	How motor vehicle is used	Whether input credit of Rs. 9,10,000 is available
(1)	(2)	(3)	(4)	(5)
Situation 1	Car	5 persons	Used by employees of taxpayer for performing official  duties	Not available
Situation 2	Mini bus	13 persons	Used by employees of taxpayer for performing official duties	Not available
Situation 3	Mini bus	14 persons	Used by employees of taxpayer for performing official duties	Available
Situation 4	Car	5 persons	Used by X for personal purposes	Not available
Situation 5	Mini bus	13 persons	Used by X for personal purposes	Not available
Situation 6	Mini bus	14 persons	Used by X for personal purposes	Not available [see para 493.9-11]
Situation 7	Car	5 persons	X (or X Ltd.) is a car distributor. Car is purchased for sale to its customers	Available
Situation 8	Car	5 persons	X (or X Ltd.) is taxi service provider, car is used for transportation of passengers	Available
Situation 9	Car	5 persons	X (or X Ltd.) owns a driving training institute. Car is used for imparting lessons to learn how to drive	Available
Situation 10	Truck	–	Used by X (or X Ltd.) for transportation of goods manufactured by him/it	Available
Situation 11	Dumper	–	Used by X (or X Ltd.) for business purposes	Available
Situation 12	Work- trucks/ fork-lift trucks	–	Used by X (or X Ltd.) for business purposes	Available

Notes –

1. 1. Input tax credit is denied only in respect of motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) or when motor vehicle is used for personal purposes. Moreover, in the case of a motor vehicle [which is not for transportation of persons (e.g., truck, fork-lift truck, crane, digger, dozer, dumper, etc.)], input tax credit is available if such vehicle is used for business purposes (i.e., for making taxable supplies).
   2. Suppose in the above case of X (or X Ltd.), motor vehicle is not purchased but it is taken on lease or rent. GST is paid on input service of leasing, renting or hiring motor vehicle. By virtue of section 17(5)(b)(i), tax credit for input service will be available (or not available) as given in Column 5 of the table (supra).

Y Ltd. is engaged in transportation of cash from currency chest to bank branches and for this purpose it purchased a cash carry van after payment of GST (including GST cess). Input tax credit is available.

Under the old provisions applicable up to January 31, 2019, input tax credit was not available, as transportation of cash is not transportation of goods (under the provisions applicable from February 1, 2019, as given above, input tax credit in the case of motor vehicle is blocked only when such vehicle is used for transportation of persons).

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VESSELS AND AIRCRAFT [SEC. 17(5)(aa)] – If a person acquires vessels or aircraft, input tax credit is not available, except when it is used for the following purposes –

When input tax credit is available – When vessel or aircraft is used for the following taxable supplies, input tax credit is available –

1. 1. further supply of such vessels or aircraft; or
   2. transportation of passengers; or
   3. imparting training on navigating such vessels; or
   4. imparting training on flying such aircraft;
   5. transportation of goods.

• • Similar rule for vessels/aircraft taken on lease – The above rules are also applicable when vessels or aircraft is not purchased but taken on lease [sec. 17(5)(b)(i)].
  • Similar rule for input services of general insurance, servicing, repair and maintenance of vessels or aircraft – The above rules are also applicable for input services pertaining to vessels or aircraft (being input services of general insurance, servicing, repair and maintenance) [sec. 17(5)(ab)].

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Provisions illustrated

• • Wipro Chemicals purchases an aircraft for the purpose of transportation of senior executives when they perform official duties. IGST paid at the time of acquisition is Rs. 92 crore. Input tax credit for Rs. 92 crore is not available.
  • Sky Airways operates a fleet of Airbus and Boeing aircraft serving different domestic destinations in India. It purchases an aircraft on June 10, 2021 for transportation of passengers (or goods). Input tax credit is available.
  • Reliance Industries purchases an aircraft for the purpose of transportation of goods manufactured by it. Input tax credit is available.

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SERVICES OF GENERAL INSURANCE, SERVICING, REPAIR AND MAINTENANCE RELATING TO ABOVE MOTOR VEHICLES, VESSELS OR AIRCRAFT [SEC. 17(5)(ab)] – Services of general insurance, servicing, repair and maintenance insofar as they relate to motor vehicles, vessels or aircraft referred to in section 17(5)(a)/(aa) [see paras 493.9-1 and 493.9-2] is not eligible. To put it differently, when input tax credit on purchase of motor vehicle, vessel or aircraft is not available (under the provisions given above), tax credit on input service pertaining to repairs, insurance and maintenance of such motor vehicle, vessel or aircraft is also not available. However, input tax credit in respect of repair, insurance and maintenance is available where such service is received by a taxable person who is engaged –

a. in the manufacture of such motor vehicles, vessels or aircraft; or

b. in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.

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Provisions illustrated

• • X Ltd. purchases a Honda City car for its senior executives. Input tax credit (for GST paid on purchase of car) is not available, even if the car is used for official purposes by employees of X Ltd. Likewise, tax credit for input services of general insurance, servicing, repair and maintenance of the car is not available.
  • Y Ltd. purchases a bus [seating capacity as per registration certificate : 14 persons (or more)]. The bus is used by employees of Y Ltd. for performing official duties or for journey between office and residence. Input tax credit (for GST paid on purchase of bus) is available. Likewise, tax credit for input services of general insurance, servicing, repair and maintenance of the bus is available.
  • Taxmann Consultancy (P.) Ltd. purchases an AgustaWestland helicopter for its senior executives. Input tax credit (for GST paid on purchase of helicopter) is not available, even if it is used for official purposes by employees of Taxmann. Likewise, tax credit for input services of general insurance, servicing, repair and maintenance of the helicopter, is not available.

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SUPPLY OF GOODS/SERVICES PERTAINING TO FOOD, BEVERAGES, OUTDOOR CATERING, BEAUTY TREATMENT, HEALTH SERVICES, COSMETIC AND PLASTIC SURGERY, LEASING OF VEHICLES, VESSELS OR AIRCRAFT [SEC. 17(5)(b)(i)] – Input tax credit is not available in respect of the following supply of goods/services –

a. food and beverages;

b. outdoor catering;

c. beauty treatment;

d. health services;

e. cosmetic and plastic surgery;

f. leasing (or renting or hiring) of motor vehicles, vessels or aircraft referred to in section 17(5)(a)/(aa) [see paras 493.9-1 and 493.9-2] except when used for the purposes specified therein;

g. life insurance and health insurance.

• • Input tax credit available if input supply is used for making outward taxable supply of same category – Input tax credit is available where an inward supply of above goods/services is used by a registered person for making an outward taxable supply of the same category of goods/services or as an element of a taxable composite or mixed supply.
  • Input tax credit available where service is provided by an employer under legal obligation – Input tax credit in respect of above goods/services is available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

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Provisions illustrated

• • X Ltd., a chemical manufacturing company, purchases 100 packets of lunch for its employees. Input tax credit is not available.
  • ITC Maratha, a 5-star hotel in Mumbai, purchases 10 one kg. chocolate cakes for one of its restaurants (to be used for Sunday Buffet lunch). Input tax credit is available.
  • Y Ltd., a manufacturing company (having more than 250 workers), is required to provide canteen facility to its employees as per section 46 of the Factories Act, 1948. Input tax credit pertaining to canteen facility is available to Y Ltd.
  • Medical service and health insurance service are provided by Z Ltd. to its employees under contractual obligations (i.e., as per employment agreement with employees). There is no legal obligation to provide medical service and/or health insurance service to employees. In this case, input tax credit is not available.
  • Z Ltd. provides medical services for its staff in a Government hospital in Hyderabad (annual payment to hospital includes GST of Rs. 14,000). Providing such facility is compulsory under Telangana Government regulations. Input tax credit can be claimed. If, however, there is no legal requirement, input tax credit is not available.

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MEMBERSHIP OF CLUB, HEALTH AND FITNESS CENTRE [SEC. 17(5)(b)(ii)] – Input tax credit is not available in respect of input supply of goods/services pertaining to membership of a club, health and fitness centre.

Input tax credit available where service is provided by an employer under legal obligation – Input tax credit in respect of above goods/services is available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

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Provisions illustrated

• • X Ltd., a software consultancy company, provides health club and sports club facility to its employees under contractual obligations. There is no legal obligation under any government regulations for the same. Input tax credit is not available to X Ltd. pertaining to these facilities.
  • Y Ltd. pays corporate membership fees of GymKhana Club for its managing director (fee includes GST of Rs. 82,000). As there is no legal requirement to provide corporate membership of GymKhana Club to the managing director, Y Ltd. cannot claim input tax credit of Rs. 82,000.

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TRAVEL BENEFITS TO EMPLOYEES [SEC. 17(5)(b)(iii)] – Input tax credit is not available in respect of the input supply pertaining to travel benefits to employees on vacation (such as leave or home travel concession).

• • Input tax credit available if provided under legal obligation – Input tax credit in respect of the above input service is available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

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Provisions illustrated

A company pays leave travel concession (LTC) to B (one of its employee). Payment covers air fare of B and his family for going on leave. GST on fare is not eligible for input tax credit.

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WORKS CONTRACT INPUT SERVICES PERTAINING TO CONSTRUCTION OF AN IMMOVABLE PROPERTY [SEC. 17(5)(c)] – Works contract services when taken as input supply for construction of an immovable property (other than plant and machinery) is not eligible for input tax credit.

• • Input tax credit available for further supply of works contract service – If the above input supply is used for further supply of works contract service, input tax credit is available. For instance, a contractor can take input tax credit pertaining to works contract services which he has obtained from a sub-contractor.
  • Construction includes renovation, alteration, etc. – For the above purpose, “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property. If cost of reconstruction, renovation, addition, alteration or repairs is not capitalised in the books of account of the registered person, input tax credit can be taken.
  • Plant and machinery – Input tax credit of GST paid on purchase of plant and machinery is available.

GOODS/SERVICES RECEIVED BY A TAXABLE PERSON FOR CONSTRUCTION OF AN IMMOVABLE PROPERTY [SEC. 17(5)(d)] – Goods/services received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account (including when such goods/services are used in the course or furtherance of business) is not available.

• • Construction includes renovation, alteration, etc. – For the above purpose, “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property. If cost of reconstruction, renovation, addition, alteration or repairs is not capitalised in the books of account of the registered person, input tax credit can be taken.
  • Plant and machinery – Input tax credit of GST paid on purchase of plant and machinery is available.

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Provisions illustrated

• • X, a registered GST dealer, is an architect. To construct a building for his personal use, he purchases marble stone and air-conditioners. GST paid on these goods is not eligible for input tax credit.
  • In the above example, if the building is used for the purpose carrying on his profession, input tax credit is not available for purchase of marble stone. However, input tax credit for purchase of air-conditioners is available.

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INPUT GOODS/SERVICES RECEIVED BY A PERSON COVERED BY COMPOSITION SCHEME/ALTERNATIVE COMPOSITION SCHEME [SEC. 17(5)(e)] – Input tax credit on goods/services received by a person who is registered under section 10 and covered by Composition Scheme/Alternative Composition Scheme, is not available.

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Provisions illustrated

X has opted under section 10 for Composition Scheme or Alternative Composition Scheme. Tax on inputs paid by him is not eligible for input tax credit.

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GOODS/SERVICES RECEIVED BY A NON-RESIDENT TAXABLE PERSON [SEC. 17(5)(f)] – Input tax credit is not available in respect of goods/services received by a non-resident taxable person. If, however, goods are imported by him, tax credit is available.

GOODS/SERVICES USED FOR PERSONAL CONSUMPTION [SEC. 17(5)(g)] – Input tax credit is not available in respect of goods/services used for personal consumption.

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Provisions illustrated

• • If goods/services are used only for personal consumption of the registered dealer, input tax credit is not available (maybe for personal consumption of sole proprietor, partners or directors of the registered person).
  • If above goods/services are partly used for personal purpose and partly used for business purposes, input tax credit will be disallowed on proportionate basis.

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GOODS LOST, STOLEN, GIFT, FREE SAMPLES [SEC. 17(5)(h)] – Input tax credit pertaining to goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples, is not available.

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Provisions illustrated

• • A pharma company gives free samples to doctors. No GST is applicable on outward supply [supplier and recipients are not “related”, consideration is absent, GST is nil – see para 404.18]. Input tax credit is not available.
  • Free gifts are sent by head office to branch office. This activity of distribution of gifts or free samples falls within the scope of “supply” on account of the provisions contained in Schedule I [see para 414.2]. On supply of gift by head office to branch office, GST is applicable. Consequently, the supplier would be eligible to avail of the benefit of input tax credit.
  • On July 1, 2019, Reliance Digital offers “buy one mobile, get a power bank free”. It may appear at first glance that in such a case, power bank is being “supplied free of cost” without any consideration. In fact, it is not an individual supply of free goods but a case of two supplies where a single price is being charged for the entire supply (of mobile and power bank). It can at best be treated as supplying two goods for the price of one. Since it is not free supply, input tax credit is available.

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ANY TAX PAID IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 74, 129 AND 130 [SEC. 17(5)(i)] – Any tax paid in accordance with the provisions of sections 74, 129 and 130 is not eligible for input tax credit. No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, wilful misstatement or suppression of facts.

Dive Deeper:
Practical FAQs on Input Tax Credit under GST
How does Input Tax Credit Mechanism work?
GST Input Tax Credit & Blocked Credits