Eligible and Ineligible Input Tax Credit List under GST

Eligible and Ineligible Input Tax Credit List under GST

Eligible and Ineligible Input Tax Credit List under GST

Input Tax Credit (ITC) under GST

Input Tax Credit (ITC) is one of the essential element in the Goods and Services Tax (GST) regime, enabling business to offset their tax burden by taking credit for the tax paid on inputs. Yet, it is not possible to claim all input taxes as ITC. The GST legislation precisely specifies what can be and cannot be claimed under ITC. It is essential for businesses to understand this difference to remain compliant and avail maximum tax advantages.

This article provides a detailed eligible and ineligible input tax credit list to help taxpayers navigate the ITC provisions effectively.

Eligible Input Tax Credit List

The following input taxes can be claimed as ITC under GST, provided they meet the prescribed conditions:

1. Goods and Services Used for Business Purposes

• ITC can be claimed on goods and services used in the course or furtherance of business.

2. Inputs Used for Taxable and Zero-Rated Supplies

• ITC is available for inputs used in making taxable supplies, including zero-rated supplies (exports and supplies to SEZs).

3. Capital Goods

• ITC is allowed on capital goods used in business operations, provided they are not exclusively used for exempt supplies.

4. Input Services Used for Business

• ITC can be availed on input services such as consultancy, legal services, security services, and more.

5. ITC on Imports and Reverse Charge Mechanism (RCM)

• GST paid on imports and under RCM can be claimed as ITC, subject to compliance.

6. ITC on Office Expenses and Business Operations

• Rent, maintenance, electricity, and other overheads related to business operations are eligible for ITC.

7. Job Work Transactions

• Inputs or capital goods sent for job work and received back within the stipulated period are eligible for ITC.

8. GST Paid Under Section 74, 129, and 130

• ITC is available if the tax is paid on purchases under these sections, provided it is not due to fraud, willful misstatement, or suppression of facts.

Ineligible Input Tax Credit List

The GST law restricts ITC claims on specific goods and services to prevent misuse. The following are ineligible for ITC:

1. Motor Vehicles and Conveyances (with Exceptions)

• ITC on motor vehicles is not allowed unless used for:
• Transporting passengers
• Providing training on driving, flying, or navigating such vehicles
• Transporting goods

2. Food, Beverages, and Catering Services

• ITC is not allowed on expenses related to:
• Food and beverages
• Outdoor catering
• Club memberships
• Health and fitness centers
• Exception: Allowed if used for further taxable supply (e.g., catering businesses).

3. Works Contract Services

• ITC is restricted on works contract services when supplied for the construction of immovable property (except for plant and machinery).

4. Goods and Services Used for Personal Use

• ITC is disallowed on goods/services used exclusively for personal consumption.

5. Membership of Clubs and Recreational Activities

• ITC cannot be claimed on club memberships, recreational activities, or similar expenses.

6. Travel Benefits for Employees

• ITC is not available on expenses related to employee travel (such as vacations and leisure travel), except when it is required by law.

7. Construction of Immovable Property

• ITC is not available for construction expenses (except when used for further taxable supplies or plant and machinery).

8. Goods Lost, Stolen, or Destroyed

• ITC is restricted on goods that are lost, stolen, written off, or disposed of as gifts/free samples.

Conditions for Claiming ITC

To claim ITC, businesses must satisfy the following conditions:

1. The taxpayer must possess a valid tax invoice or debit note.
2. The goods or services must have been received.
3. The supplier must have deposited the tax with the government.
4. ITC must be claimed within the prescribed time limit (by the due date of September return or annual return, whichever is earlier).
5. The taxpayer must have paid the supplier within 180 days.

Conclusion

Knowing the "list of eligible and ineligible input tax credit" will enable businesses to maximize ITC claims while not compromising on compliance with GST rules. Timely filing and appropriate records will enable the right availing of ITC and saving on penalties. A tax consultant must always be approached for query specific to ITC to adhere to compliance as well as save on tax efficiency.