Eligible ITC, Apportioned ITC Blocked ITC under GST Act in India

Goods and Services Tax (GST) has been implemented in India since 1 July 2017. As per the GST Act, businesses are entitled to claim Input Tax Credit (ITC) on their purchases, subject to certain conditions. In this article, we will explore three types of ITC - Eligible ITC, Apportioned ITC and Blocked ITC - and understand how they impact businesses.

Eligible ITC under GST Act

Eligible ITC refers to the credit that businesses can claim on the tax paid on their purchases of goods or services that are used or intended to be used in the course of their business. The following conditions must be fulfilled for a business to claim Eligible ITC:

The business must be registered under GST.
The purchase on which ITC is being claimed must be used or intended to be used for taxable supplies or business purposes.
The supplier must have filed their GST returns and paid the tax due.
The business must have a valid tax invoice or other prescribed document to support the claim.
ITC cannot be claimed on certain goods and services, such as motor vehicles and goods used for personal consumption.

Eligible ITC can be claimed by businesses on their GST return and can be used to offset their output tax liability. Any unused ITC can be carried forward to subsequent tax periods.

Apportioned ITC under GST Act

Apportioned ITC refers to the credit that businesses can claim on the tax paid on their purchases of goods or services that are used or intended to be used partly for taxable supplies and partly for exempt supplies. In such cases, the ITC is apportioned based on the proportion of taxable supplies to total supplies. The following conditions must be fulfilled for a business to claim Apportioned ITC:

The business must be registered under GST.
The purchase on which ITC is being claimed must be used or intended to be used partly for taxable supplies and partly for exempt supplies.
The supplier must have filed their GST returns and paid the tax due.
The business must have a valid tax invoice or other prescribed document to support the claim.

The amount of Apportioned ITC that can be claimed by a business is calculated using the formula: (Total ITC X Value of Taxable Supplies) / Total Supplies. Any unused Apportioned ITC can be carried forward to subsequent tax periods.

Blocked ITC under GST Act

Blocked ITC refers to the credit that businesses cannot claim on the tax paid on their purchases of goods or services for certain purposes. The following are the common expenses on which Blocked ITC cannot be claimed:

Goods or services used for personal consumption.
Membership of a club, health and fitness center
Travel benefits extended to employees on vacation such as leave or home travel concession.
Works contract services for construction of an immovable property (other than plant and machinery)
Goods or services received by a non-resident taxable person.
Goods or services used for non-business purposes.

Blocked ITC cannot be claimed by businesses on their GST return and cannot be used to offset their output tax liability. However, businesses can still claim Eligible and Apportioned ITC on their taxable supplies.

Conclusion

Understanding the different types of ITC under the GST Act is essential for businesses to manage their tax liabilities efficiently. While Eligible and Apportioned ITC can be claimed by businesses, Blocked ITC cannot be claimed and cannot be used to offset their output tax liability. By ensuring that they fulfil the conditions for claiming Eligible and Apportioned ITC, businesses can reduce their tax liabilities and improve their cash flow.