In our previous blog we learned about the conditions for availing GST input tax credit and the scenarios in which input tax credit (ITC) can be availed. In this blog, we will discuss the scenarios where you cannot avail Input Tax Credit.
- Registration not applied for within 30 days from the date on which you become liable to registerIf you have not applied for registration within 30 days from the date on which you become liable to register, you will lose the eligible ITC on inputs and inputs contained in semi-finished or finished goods in stock, on the day before the date on which you become liable to pay tax.
- After the time limit for availing Input Tax Credit is crossedITC must be availed within the earliest of the following dates-
• 1 year of date of the invoice
• The date of filing of the return for September of the next financial year
• The date of filing of the annual return (due date is 31st December of the next financial year)
Let us understand this with an illustration.
Example: Rajesh Apparel Pvt Ltd is a dealer in men’s apparel. It purchases apparel for Rs.1,00,000 from the manufacturer on 15th July, 2017. GST paid on the purchase is Rs.18,000 (18%). They have filed their annual return for the year 2017-18 on 31st July 2018, and the return for September 2018 is filed on 20th October 2018.
Here, the three dates to be checked are-
1 year from date of invoice 14th July 2018 Date of filing of return for September of the next financial year 20th October 2018 Date of filing of annual return 31st July 2018
As 1 year from the date of invoice, i.e. 14th July 2018 is the earliest among the three dates above, ITC on the invoice must be availed before 14th July 2018.
- On goods and/or services used as inputs by a composition tax payerA composition tax payer cannot avail ITC on goods and/or services used as inputs.
Example: Laxmi Kirana Stores is registered as a composition tax payer under GST. It purchases grocery items from the manufacturer for Rs.20,000 and GST is charged @ 12% amounting to Rs.2,400. As Laxmi Kirana Stores is registered as a composition tax payer, it cannot avail ITC of Rs.2,400 on the purchase. This GST paid will become part of their material cost.
- On goods and/or services used for personal consumptionExample: Rajesh Apparel Pvt Ltd purchased apparel for Rs.50,000 from the manufacturer. GST paid on the purchase is Rs.9,000. Out of the apparel purchased, apparel worth Rs.2,000 is taken by the owner for his personal use. The remaining apparel are sold to customers. Here, the ITC to be availed on the purchase is Rs.8,640 (48,000 *18%).
- On goods and/or services used for making exempt suppliesITC cannot be availed on goods and/or services used for making exempt supplies and supplies where the receiver pays tax on reverse charge basis.
Example: You manufacture an exempt good. You purchase the following inputs (used to manufacture the exempt good) on 4th September 2017-
Inward supplies- 4.9.2017 Inputs Value (Rs.) GST paid on inputs @ 18% (Rs.) Raw material A 3,00,000 54,000 Raw material B 30,000 5,400 Total 3,30,000 59,400
Here, you cannot avail the ITC of Rs.59,400 as these inputs have been used for manufacturing an exempt good.
- On services received for which payment has not been made within 3 months from the date of invoiceIf the recipient of a service has not made payment for the receipt of the service along with the tax payable within 3 months from the date of invoice, the ITC availed will be added to the recipient’s liability, along with interest due.
Example: You have taken auditing and consultancy services from a Chartered Accountant. The value of the service is Rs.50,000 and the GST charged is Rs.9,000 (@18%). If you do not make the payment of Rs.59,000 within 3 months of the invoice date, the ITC of Rs.9,000 availed by you will be added to your liability, along with the interest due.
- On goods lost, stolen, destroyed, written off or disposed as gift or free samplesExample: You are an electronic goods dealer. On 1st Nov, 2017, you purchase 20 computers @ Rs. 25,000 each from the manufacturer. GST charged is Rs.90,000 (@18%). On 2nd Nov, 2017, 1 of the computers gets destroyed completely and cannot be used any more. You cannot avail the ITC on that computer, i.e., Rs. 4,500.
- On motor vehicles and other conveyanceITC is not allowed on motor vehicles and other conveyance unless they are:
• Further supplied OR
• Used for transporting passengers or goods OR
• Used for imparting training on driving, flying, or navigating such vehicles or conveyances
Example: Super Cars Pvt Ltd, a car manufacturer, purchased a Tempo Traveler for the transport of employees within the factory premises. Super Cars Pvt Ltd cannot avail ITC on the Tempo Traveler as it has not been used for the above activities.
Let us look at another scenario. Mukesh Travels, a tour operator, purchased a Tempo Traveler for the purpose of transporting tourists during their package tours. Here, Mukesh Travels can avail ITC on the Tempo Traveler, as it is used for transporting passengers – a business activity for Mukesh Travels.
- On food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgeryITC cannot be availed on food and beverages, outdoor catering, beauty treatment, health services and cosmetic and plastic surgery, except where they have been used for making outward supply of the same category of goods or services.
Example 1: Super Cars Pvt Ltd take the services of a caterer, Rakesh Caterers, for Diwali Celebration event for its employees. Super Cars Pvt Ltd cannot avail ITC on the catering service, as their business activity is not catering service.
Example 2: Rakesh Caterers take the services of a Shamiana provider while providing the catering service to Super Cars Pvt Ltd. Here, Rakesh Caterers can avail ITC on the Shamiana services, as they have been used for making outward supplies of the same category of services.
- On membership of clubs and health & fitness centres, rent-a-cab services and life & health insurance taken for employees, except notified services which are obligatory to be provided to employeesExample: Mukesh Travels, a tour operator, takes an annual membership of a fitness centre, Pratham Fitness Centre, for the use of its employees. Here, Mukesh Travels cannot avail ITC on the GST paid on membership charges.
- On travel benefits to employees on vacation, such as leave or home travel concessionExample: Super Cars Pvt Ltd reimburses its senior employees on travel expenses as part of LTA (Leave Travel Allowance). Super Cars Pvt Ltd cannot avail ITC on the GST component of the travel fare reimbursed.
- On tax component of cost of capital goods, if depreciation has been claimed on the tax componentITC cannot be availed on the tax component of cost of capital goods, if depreciation has been claimed on the tax component in Income Tax return.
Example: Super Cars Pvt Ltd purchases machinery for Rs.50,00,000 to be used for the manufacture of cars. The GST paid on the machinery is Rs.9,00,000. Super Cars Pvt Ltd claims depreciation of Rs.59,00,000 on the machinery under Income Tax, which is including the GST component. In this case, Super Cars Pvt Ltd cannot avail the ITC of Rs.9,00,000 on the machinery.
Treatment of Input Tax Credit already availed in exceptional scenarios
When a regular dealer who has availed ITC switches to the composition scheme
When a regular dealer who has availed ITC switches to the composition scheme, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of switching to the composition scheme.
Example: You are registered as a regular dealer. You switch to the composition scheme on 1st September 2017 as your turnover does not exceed Rs.50 Lakhs. On 31st August 2017, you have the following inputs in stock on which ITC has already been availed-
|Closing stock- 31.8.2017|
|Inputs||Value (Rs.)||GST paid on inputs @ 18% (Rs.)|
|Raw material A||1,50,000||27,000|
|Raw material B||20,000||3,600|
On switching to the composition scheme, you have to pay back the ITC of Rs.30,600 availed on the inputs in stock.
When taxable goods and/or services become exempt
When taxable goods and/or services supplied by a person are notified as exempt, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished or finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of exemption.
Example: You manufacture a taxable good, which is notified to be exempt from GST with effect from 15th September 2017. On 14th September 2017, you have the following inputs in stock on which GST has already been availed-
|Closing stock- 14.9.2017|
|Inputs||Value (Rs.)||GST paid on inputs @ 18% (Rs.)|
|Inputs in semi-finished goods||50,000||9,000|
The ITC availed on the inputs in stock, ie. Rs.27,000 will have to be paid back.
Note: GST rates are not finalised yet and the rates mentioned in the examples are for illustration purpose only.