Input Tax Credit Not Allowed on Negative list of goods or services

GST
Negative list of goods or services

Are you wondering whether to take ITC(Input Tax Credit) Or not on expenses made for business?  

If yes then you should read this article.  After reading this article, you will be in a position to understand this Negative list of goods or services, where ITC is not permitted.  

You must have read in newspapers, and seen on TV that under GST prices will come down because the manufacturer or the supplier can take ITC on Goods or services supplied by him,  but there are some conditions for taking ITC.

There are few goods or services on which ITC is not permitted and everyone does not know it. There is a provision in the GST Act that prohibits taking ITC On a few goods or services.  Before going through the list of negative goods or services, one should know that the law allows taking credit only if the inputs are used for making further taxable products or services.

Therefore before taking ITC think a while, whether your business is going to make a particular product or will give a service on which you will be paying tax while supplying it further.   If your answer is yes then you are doing so-called “Furtherance of business”, and the law allows you to take ITC on such goods or services unless something is prohibited.   Such condition was even prevailing in the past for Central Excise credit and VAT.

List of Goods and Services

In CGST section 17(5), below goods or services are coming under negative list and you should not take ITC on such goods or services.   Subsection 5 reads as:

Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, the input tax credit shall not be available in respect of the following, namely:—

(a) motor vehicles and other conveyances(ITC Not allowed), except when they are used––

(i) for making the following taxable supplies, namely:— (ITC Allowed)
(A) further supply of such vehicles or conveyances; or

(B) transportation of passengers; or

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;  (ITC Allowed) 

(b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an 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 an element of a taxable composite or mixed supply;(ITC allowed with the condition)

(ii) membership of a club, health and fitness centre; (ITC Not allowed)

(iii) rent-a-cab, life insurance and health insurance except where––(ITC Not allowed)

(A) the Government notifies the services which 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; and

(iv) travel benefits extended to employees on vacation such as leave or home travel concession; (ITC Not allowed)

(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (ITC allowed with the condition)

(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. (ITC Not allowed)

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

(e) goods or services or both on which tax has been paid under section 10; (ITC Not allowed)

(f) goods or services or both received by a non-resident taxable person except on goods imported by him; (ITC Not allowed)

(g) goods or services or both used for personal consumption;(ITC Not allowed)

(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (ITC Not allowed)

(i) any tax paid in accordance with the provisions of sections 74, 129 and 130. (ITC Not allowed)

This article must have surely solved your many questions related to ITC.   Therefore do not take ITC on the above services or goods even if you see them on the GST portal.  If anytime you wrongly availed the ITC on such items then don’t worry.   Please reverse the wrong availed amount with interest as soon as possible to avoid penalty.

Related Articles

What is GST Input Tax Credit?

Under the Input Tax credit system in GST, the taxpayers can reduce their tax liability by claiming credit to the extent of GST paid on the purchases. more

Interest on Reversal of Input tax credit

If the taxpayer has availed wrong input tax credit under GST then he needs to reverse it by paying Interest on it.  Similarly, this is applicable even he has availed excess ITC under Goods and Service Tax. more

Refund of Input Tax credit

A taxpayer can ask for a refund of taxes (GST) & ITC paid under certain circumstances. Check out the scenarios for Refund of accumulated/unutilized ITC under GST. more

How to check Input Tax credit on GST portal?

In order to check the input tax credit available on the GST portal, you need to download GSTR 2A from the GST website. more

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