In our previous post we highlighted the conditions wherein ITC can be availed under the regime of GST. To diversify your knowledge further on this subject matter, here is our post on the many situations wherein you cannot avail ITC.
1. Cannot avail ITC if you do not apply for Registration within 30 days from the date you become liable to register
For example, if you are a manufacturer of automotive parts and have crossed the threshold limit for registration on 1st October 2017. You have a stock of raw materials worth ₹5,00,000 on this date and have paid GST @ 18% (₹90,000) on them. You must ensure that you apply for registration within 30 days from 1st October 2017. In case you fail to do so, you will lose the eligible ITC of ₹90,000 on the raw materials in stock.
2. Cannot avail ITC after the time limit for availing ITC is crossed
ITC should be availed before the earliest of the following dates:
Within 1 year from date of the invoice OR Within the date of filing of the return for September of the next financial year OR Within the date of filing of the GSTR-9 (due date is 31st December of the next financial year).
For example,Hi-Tech Industries Pvt Ltd is a manufacturer of plastic moulding components. It purchases plastic granules for ₹500,000 from the manufacturer on 10th February 2018. GST paid on the purchase @18% is₹90,000. It has filed their annual return for the year ‘17-’18 on 30th November 2018, and the return for September 2018 is filed on 20th October 2018.
Therefore, the earliest of the 3 dates is:
Hence ITC cannot be availed after 20th October 2018 (which is the earliest of the 3 dates).
3. A composition tax payer cannot avail ITC on goods and/or services used as inputs
Composition Tax payers are typically small tax payers who are exempted from collecting outward tax and can’t claim input tax credit as well. Since these dealers, can not avail the input tax credit, the government has given them a special privilege to pay taxes only on a certain pre-defined percentage of the turnover.
For example: Mr Reddy, a composition tax payer purchases hand tools from the manufacturer for ₹100,000 and GST is charged @18% amounting to ₹18,000. Since Mr Reddy is registered as a composition tax payer, he cannot avail ITC of ₹18,000 on the purchase.
4. Cannot avail ITC on goods and/or services used for personal consumption
For example, you are an electronic goods dealer and you purchase Air Conditioners for ₹ 300,000 from a manufacturer, on which GST of ₹54,000 (@18%) has been paid. Out of the Air Conditioners purchased, Air Conditioner worth ₹1,00,000 were taken by you for your personal use and the other Air Conditioners were sold to customers. Now, ITC can be availed only on the part used for business, i.e., ₹2,00,000, which makes the permitted ITC here as ₹36,000 (2,00,000*18%).
5. Cannot avail ITC on goods and/or services used for making exempt supplies
Whether it’s the exempt supplies or the supplies where the receiver pays tax on reverse charge basis, ITC is not available on either of these.
Ram Enterprises is a manufacturer of coloring books for kids which are taxed @0% under GST online regime. He buys paper for ₹ 100,000 @18% and pays ₹ 18,000 as input tax credit on it. Now, when he sells the coloring books worth ₹ 100,000 he is not allowed to charge any Output tax. Hence that ₹ 18,000 also becomes a part of his cost
6. Cannot avail ITC on services received for which payment has not been made within 3 months from the date of invoice
If an entity avails services from its vendor and has not paid the vendor his dues with the tax amount within 3 months of date of invoice, in such a scenario, the recipient of the service is liable to deposit ITC along with the interest due.
For example, LLFS technologies has availed marketing services from a Media Agency. The invoice for the same was raised on 01st August 2017 at ₹100,000 plus ₹18,000 tax (@18%). If LLFS technologies acknowledges the invoice and fails to make a payment of ₹ 118,000 to the media agency by 01st November 2017, then not only will LLFS technologies lose ITC benefit, but also be liable to pay ₹ 18,000 to government plus interest on the same.
7. Cannot avail ITC on goods lost, stolen, destroyed, written off or disposed as gift or free samples
Entel Agencies is dealer of mobile phones. On 1st October 2017, they purchased 50 mobile phones at ₹ 10,000 each for total of ₹ 500,000. Also they paid GST @ 12% of ₹ 60,000. However, they found out that out of 50 mobile phones, 10 are defective and unusable. Hence, Entel Agencies won’t be able to get ITC on those 10 mobile phones and lose ₹ 12,000 of ITC.
8. Cannot avail ITC on motor vehicles and other conveyance
ITC cannot be claimed on motor vehicles if they are used for self-consumption by companies or individuals.
However, ITC can be claimed on motor vehicles in the following conditions:
– When vehicles are used for providing training on driving, flying or navigating
– When vehicles are further supplied
– When vehicles are used for transporting goods or passengers
For example, JCM Automobiles bought a Toyota Innova to be used as a means of conveyance of its employees from one site to another. In such scenario, JCM automobiles will not be able to claim ITC on the vehicle as it is using it for self-consumption.
From following month JCM Automobiles outsources its transportation contracting to Elite Tours and Travels, who is into transportation business. Here, since Elite Tours and Travels is offering transportation services, it will be able to claim ITC on the vehicles it bought for extending the service.
9. Cannot avail ITC on food and beverages, outdoor catering, unless they are used for making output supply of the same category of goods and/or services.
For example, Harper Technologies Ltd hosts its annual day celebration in Taj Hotels. Taj Hotels had arranged for catering services for the event. Harper technologies ltd, will not be able to avail ITC as it is not into the business of catering.
In second scenario, Taj Hotels utilizes services of a flower decorator for organizing the event. In this case, Taj Hotels will be able to claim Input tax credit on the tax paid to flower decorator as flower decoration was necessary for providing catering services.
10. Cannot avail ITC on beauty treatment, health services, cosmetic and plastic surgery, unless they are used for making output supply of the same category of goods and/or services.
11. Cannot avail ITC on membership of clubs and health & fitness centres, rent-a-cab services and life & health insurance taken for employees:
For example, Taj Hotels, takes an annual membership of a fitness centre, for the use of its employees. Here, Taj Hotels cannot avail ITC on the GST paid on membership charges.
12. Cannot avail ITC on travel benefits to employees on vacation, such as leave or home travel concession
For example, Harper Technologies Pvt Ltd decides to reimburse its senior employees on travel expenses as part of their LTA (Leave Travel Allowance). Harper Technologies Pvt Ltd cannot avail ITC on the GST component of the travel fare reimbursed.
13. Cannot avail ITC on tax component of cost of capital goods, if depreciation has been claimed on the tax component in Income Tax return
For example, Rhonda Cars Pvt Ltd purchases machinery for ₹ 1,000,000 to be used for the manufacture of automotive components. The GST paid on the machinery @18% is ₹ 180,000. Rhonda Cars Pvt Ltd claims depreciation of ₹ 1,180,000on the machinery under Income Tax, which is including the GST component. In this case, Rhonda Cars Pvt Ltd cannot avail the ITC of ₹ 180,000on the machinery.
14. When a regular dealer who has availed ITC migrates to the composition scheme, for reasons such as turnover does not exceed Rs.50 Lakhs – the person must return the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods reduced by percentage points, on the day before the date of migrating to the composition scheme.
15. When taxable goods and/or services supplied by a person are notified as exempt under new GST regime, the person must return the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods reduced by percentage points, the day before the date of exemption.