Block Input Tax Credit – Motor Vehicle – Section 17(5) of CGST Act, 2017

The accounting aspects of the Goods and Services Tax (GST) are yet to be completely understood by many business owners in India. This is because the GST is a new tax regime that was introduced on July 1, 2017, in the country, and many of its provisions are still being debated and discussed by experts. One such provision that is causing much confusion among business owners is the Block Input Tax Credit – Motor Vehicle – Section 17(5) of the CGST Act, 2017.

What is Input Tax Credit?

Input Tax Credit (ITC) is one of the most important provisions of the GST. It is a mechanism that allows taxpayers to claim credit for the taxes paid on the inputs used in the production of goods or services. This means that businesses can claim the tax paid on goods and services purchased for their business activities, and adjust it against the tax that they collect from their customers.

What is Section 17(5) of the CGST Act, 2017?

Section 17(5) of the CGST Act, 2017, is a provision that blocks the ITC on the motor vehicles purchased or leased by the taxpayer, except in certain cases. This provision is aimed at ensuring that the GST is not a tax on the luxury of motor vehicles, and only the business use of motor vehicles is eligible for ITC.

When can a taxpayer claim ITC on motor vehicles?

A taxpayer can claim ITC on motor vehicles in the following cases:

When the motor vehicle is used for making taxable supplies
When the motor vehicle is used for transportation of goods
When the motor vehicle is used for providing services of transportation of passengers, or imparting training on driving, flying, navigating such motor vehicles or conveyances

When can a taxpayer not claim ITC on motor vehicles?

A taxpayer cannot claim ITC on motor vehicles in the following cases:

When the motor vehicle is used for personal use
When the motor vehicle is used for transportation of persons, or for imparting training on driving, flying, navigating such motor vehicles or conveyances
When the motor vehicle is used for transportation of goods, but it is a passenger vehicle (i.e., a vehicle designed for carrying passengers, and not goods)
When the motor vehicle is used for transportation of goods, but the taxpayer is in the business of supplying passenger transportation services (i.e., the taxpayer is not engaged in the business of supplying goods, but only passenger transportation services)

What is the impact of Section 17(5) on taxpayers?

The impact of Section 17(5) on taxpayers can be significant, as it can lead to a reduction in the amount of ITC that they can claim. This can result in an increase in the cost of production or services, and can affect the profitability of the business. Therefore, it is important for taxpayers to understand the provisions of Section 17(5) and ensure that they comply with them.

Conclusion

The Block Input Tax Credit – Motor Vehicle – Section 17(5) of the CGST Act, 2017, is an important provision that taxpayers need to be aware of. It is important to remember that ITC can only be claimed on the motor vehicles that are used for business purposes, and not for personal use. Therefore, it is essential for taxpayers to maintain proper records of the use of motor vehicles and ensure that they comply with the provisions of the GST.