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GST Section 17: ITC Apportionment & Ineligible Tax Credit

Arpit Kulshrestha

Unlimited Tax Return Filing

Quick to Understand GST Section 17

What is GST Section 17?

ITC (Income Tax Credit) Apportionment and Blocking of Ineligible GST Credits are covered in Section 17 of the CGST Act, 2017. GST was implemented to prevent cascading taxes and to ensure a consistent flow of input tax credits with the complete supply chain. The primary and foremost strength of the GST law is the input tax credits mechanism. The value of the GST as a value-added tax is greatly increased owing to the ITC.

Go through the questions and answers below for more clarification to help you understand the above-stated.

GST Section 17- ITC Credit Apportionment and Blocking of Ineligible Tax Credits

  1. If the registered person uses both the goods or services partly for any business’s purpose or any other intent, the credit amount shall be controlled to the extent of the income tax that it is referable to for the purposes of his business.
  2. If the registered person uses the goods or services in conjunction with both making taxable (including zero-rated) supplies under this Act or the Integrated Goods and Services Tax Act and making exempt supplies under the same Acts, the amount of the credit is controlled to the extent of the input tax that is referable to the taxable (including zero-rated) supplies.
  3. The value of an exempt supply under subsection (2) shall be accordingly. And shall also include supplies where the person is accountable for the tax on the basis of reverse charges, transactions in securities, the sale of land, and, subject to clause (b) of paragraph 5 of schedule II, the sale of a building. [Explanation: For this subsection, the term “value of exempt supply” shall not include the value of any activities or transactions as mentioned in Schedule III, except those listed in said Schedule’s paragraph 5].
  4. A banking company or financial institution, including a non-banking financial company, that provides services by accepting deposits, extending loans, or making advances may choose to comply with subsection (2) or avail of a monthly credit equal to 50% of the eligible input tax credit on inputs, capital goods, and input services, with the remaining credit expiring: As long as the option is kept in effect for the remainder of the fiscal year after it has been exercised:

Additionally, the tax paid on supplies made by one registered person to another registered person who has the same Permanent Account Number is exempted by 50%.

  1. Despite anything stated in Section 16 Subsection 1 and Section 18 Subsection 1, the following are exempt from the availability of input tax credits:

(a) [Motor vehicle for transportation of persons with the approved seating capacity of not more than thirteen persons, including the driver, unless they are used to make one of the following taxable supplies, namely:

  • (A) Further supply of such motor vehicles
  • (B) Passenger transportation
  • (C) Imparting driving instruction in such motor vehicles

(aa) Vessels and aircraft except when they are used:

  • (i) For making any of the following taxable supplies, namely:
    • (A) Further supply of such vessels or aircraft
    • (B) Transportation of passengers
    • (C) Imparting training on operating such vessels
    • (D) Imparting training on using such aircraft
  • (ii) For transportation of goods; (ab) general insurance, servicing, repair, and maintenance services insofar as they relate to motor vehicles, vessels, or aircraft mentioned in clause (a) or clause (aa) are used with the intention specified therein; (ii) when received by a taxable person who is (I) engaged in producing such motor vehicles, boats, or aircraft; or (II) engaged in providing general insurance services for such motor vehicles, vessels, or aircraft insured by him; 38.

(b) [The supply of the aforementioned commodities, services, or both]

  • (i) Food and beverages, outdoor catering, cosmetic and plastic surgery, health services, beauty treatments, leasing, renting, or hiring of motor vehicles, vessels, or aircraft referred to in clauses (a) or (aa), unless used for the purposes specified therein, life insurance, and health insurance: Provided that the input tax credit in respect of such goods or services, or both, is used by a registered person for making an outward taxable supply of the same category.
  • (ii) Participation in a club or fitness facility
  • (iii) Travel perks provided to workers while they are on vacation, such as leave or home travel discounts [providing the input tax credit in respect of such goods or services or both shall be available, where it is required that an employer offer the same to its workers under any currently in effect law].

(c) Services under a works agreement provided for the building of an immovable property (other than machinery and plant), unless they are input services for the provision of further works agreement services;

(d) Goods, services, or both that a taxable person receives for the purpose of constructing an immovable property on his own dime (other than plant or apparatus), including when such goods, services, or both are employed in the conduct or advancement of business. For the purposes of clauses (c).

(d) The term “constructive” comprises reconstruction, renovation, additions, alterations, or repairs to the aforementioned immovable property to the extent that they are capitalised;

(e) Goods or services, or both, for which Section 10 tax has been paid;

(f) Commodities or services, or both, that a non-resident taxable person receives, excluding commodities that he imports;

(g) Products or services used for personal consumption, or both;

(h) Products that were given away as gifts or free samples, lost, stolen, destroyed, or otherwise disposed of; and

(i) Any tax that has been paid in accordance with sections 74, 129, and 130.

(6) The government may offer guidance regarding the appropriate approach for attributing the credit mentioned in subsections (1) and (2).

Explanation: For the purposes of this chapter and Chapter VI, “plant and machinery” refers to apparatus, equipment, and machinery that is fixed to the ground by a foundation or other structural supports but does not include any of the following: (i) land, buildings, or other civil structures; (ii) telecommunication towers; and (iii) pipelines installed outside the factory grounds.

FAQs Regarding Tax Credit Allocation and Blocked GST Credits

Q.1 Is it possible to use the input tax credit for both personal and business purposes?

No, you can only use the ITC for business needs

Q.2 Is it possible to claim the input tax credit used for exempt supplies?

No, only for taxable supplies, including zero-rated supplies. For example, exports

Q.3 Can a composite dealer claim an input tax credit?

Input Tax Credit cannot be claimed by the composite registered person.

Q.4 Can products that are stolen, damaged, or samples be claimed for input tax credits?

ITC cannot be claimed in such circumstances.

Q.5 Can tax paid under Sections 74, 129, and 130 be claimed?

ITC cannot be claimed in cases where any demand has already been paid under the aforementioned sections.

Q.6 How do I demonstrate an ineligible ITC in GSTR-3B?

The ITC head is ineligible according to all other ITC tables 4(B) in GSTR-3B.

Q.7 How should invalid ITC be handled in the books of accounts?

Q.8 If an ineligible ITC has been claimed, what should I do?

If the upcoming GSTR-3B is not paid, ITC reversal can be done whether through the GSTR-3B or DRC-3B with applicable interest.

Q.9 Can GST paid on building repair and maintenance services be claimed?

Expenses off in the profit and loss account and capitalised in the building cost.

Q.10 Can a non-resident taxpayer who makes domestic purchases claim ITC?

No, except for import of goods, a non-resident taxable person is not permitted to claim ITC on domestic purchases.

Disclaimer:- “All the information given is from credible and authentic resources and has been published after moderation. Any change in detail or information other than fact must be considered a human error. The blog we write is to provide updated information. You can raise any query on matters related to blog content. Also, note that we don’t provide any type of consultancy so we are sorry for being unable to reply to consultancy queries. Also, we do mention that our replies are solely on a practical basis and we advise you to cross verify with professional authorities for a fact check.”

Published by Arpit Kulshrestha

Arpit Kulshrestha seeks higher interests in financial services, taxation, GST, I-T, etc. Writes articles with depth knowledge and is extensive for the same. The resources provide effective articles for the products of SAG infotech which provides taxation and IT software. Writing from observations and researching makes his articles virtuous.
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