14 Cases where Input Tax Credit cannot be availed under GST

The Goods and Services Tax (GST) was introduced in India on July 1, 2017. While GST has been constantly evolving into a well-structured taxation system, one thing that sets it apart (from the previous taxation system) is its Input Tax Credit Mechanism. The Input Tax Credit (ITC) mechanism allows a taxpayer to reduce their tax liabilities on his sales with the taxes paid on inward supplies. However, there are certain scenarios under GST where Input Tax Credit cannot be availed by taxpayers. These scenarios can be noted as follows:

Note: Previously published on April 23, 2019. Revised on June 4, 2021.

Note: GST Notification 18/2022 states 30th November 2022 is time limit to claim ITC, issue CDN & amend returns.

Cases where Input Tax Credit cannot be availed under GST

1. Motor vehicles & Conveyances

A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
ITC is not available on vessels and aircraft.

Exceptions
ITC will be available if the given vehicle is being used for

Supply of other vehicles, conveyances, vessels or aircraft.
Transportation of passengers
Training to drive such vehicle, conveyances, vessel or aircraft.
Transportation of goods

2. Food, beverages, Cosmetics, etc.

A person cannot claim ITC for the tax paid for the follows:

Food and beverages
Outdoor catering
Beauty treatment
Health services
Cosmetic and plastic surgery

Exceptions
ITC will be available if the category of inward and outward supply is same or the component belongs to a mixed or composite supply under GST.

3. Services of general insurance, servicing, repair and maintenance

In cases involving general insurance, services, repair or maintenance of a motor vehicle, vessels or draft (as given in point 1), the taxpayer cannot claim ITC.
Exceptions
ITC will be available if

Insurance is received by a taxable person engaged—
- In the manufacture of such motor vehicles, vessels or aircraft; or
- In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him
In case of exceptions as mentioned for motor vehicles/vessels/aircraft (pt. 1)

4. Sale of membership in a club, health, fitness centre

ITC is not available on taxes paid for any membership fees for gyms, clubs etc.

5. Rent-a-cab services, life insurance, health insurance

ITC is not available for rent-a-cab, health and/or Life insurance

Exceptions:
ITC can be availed if

Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force
If the category is the same for the inward supply and outward supply or it is a part of the mixed or composite supply
Leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as those mentioned for (1).

6. Travel

ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.

Exception:
In cases where taxes are paid for Business travels, the given person is eligible to claim ITC.

7. Works contract

ITC cannot be claimed any Works Contract services. Similarly, ITC cannot be availed for the construction of immovable property.

Exceptions:
ITC is available in cases where the input service is used for further work contract services.

8. Constructing an immovable property on own account

For the construction of an immovable property on one’s own account, the taxpayer cannot avail ITC on his/her inputs. Similarly, if such goods/services are used in the course or furtherance of business, ITC will not be available.

Exceptions:
ITC is available on inputs used to manufacture plant and machinery for own use.

9. Composition Scheme

A taxpayer registered under the composition scheme cannot avail ITC.

10. Non-residents

A non-resident taxable person cannot avail refunds under the ITC mechanism in GST

Exceptions:
In the case of goods imported by a non-resident taxable person, ITC can be availed.

11. Personal use

No ITC will be available for the goods/ services used for personal purposes.

12. Free samples and destroyed goods

ITC cannot be availed if the given good is,

Lost
Stolen
Destroyed
Written off/given off as gift or free samples.

13. Restaurant Services

Standalone restaurants charging 5% GST cannot claim ITC on their inputs.

Exceptions:
Restaurants as part of a hotel, with room tariffs exceeding Rs. 7,500 and paying 18% GST can avail ITC.

So, these were all the cases where Input Tax Credit cannot be aviled under GST by taxpayers.

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