Cases Where Input Tax Credit under GST Cannot Be Availed

GST was introduced in India on July 1, 2017, with an aim to simplify the process of indirect taxation. Input Tax Credit (ITC) is one of the salient features of GST, which allows businesses to claim credit for the taxes paid on the inputs used in the production of goods or services. However, there are certain cases where ITC under GST cannot be availed. In this article, we will discuss those scenarios where businesses cannot claim ITC.

ITC cannot be availed on personal use

Businesses cannot claim ITC on goods or services used for personal purposes or for the benefit of the employees. For instance, if a company purchases a car for the personal use of its director, then it cannot claim ITC on the GST paid for the car. Similarly, if a company provides free meals to its employees, then it cannot claim ITC on the GST paid for those meals.

ITC cannot be availed for non-business purposes

ITC can only be claimed for goods or services used for the purpose of business. If a company uses goods or services for non-business activities, then it cannot claim ITC on the GST paid for those goods or services. For instance, if a company purchases a laptop for personal use, then it cannot claim ITC on the GST paid for the laptop.

No ITC on exempt supplies

ITC cannot be claimed on exempt supplies. Exempt supplies are those supplies on which no GST is charged. For instance, if a company sells goods that are exempt from GST, then it cannot claim ITC on the GST paid for the inputs used in the production of those goods.

No ITC on goods and services used for making exempt supplies

ITC cannot be claimed on goods or services used for making exempt supplies. For instance, if a company uses goods or services for the production of exempt goods, then it cannot claim ITC on the GST paid for those goods or services.

No ITC on goods and services used for personal consumption

ITC cannot be claimed on goods or services used for personal consumption. For instance, if a company buys a car for the personal use of its director, then it cannot claim ITC on the GST paid for the car.

No ITC on restaurants

Restaurants are not allowed to claim ITC on the GST paid for the inputs used in the preparation of food and beverages as per the GST law. This provision has been challenged by the restaurant industry, but as of now, they cannot claim ITC on the GST paid for the inputs used in the preparation of food and beverages. The reason for this is that the government assumes that restaurants include a certain amount of profit margin in the price of the food and beverages, and hence, they should not be allowed to claim ITC.

Conclusion

Input Tax Credit is one of the most important features of GST, but there are certain cases where it cannot be availed. Businesses should be aware of these cases and ensure that they do not claim ITC where it is not allowed. The onus of compliance lies with the businesses, and they should ensure that they follow the provisions of the law.