Even though the idea behind execution of GST is free flow of tax credit, input tax credit is not available in respect of certain inward supply of goods or services as stated in Section 17(5) of CGST Act, 2017. Here are some of the cases where tax credit is not available.
ITC is not allowed for Motor vehicles used to transport persons, which have a seating capacity of less
than or equal to 13 persons (including the driver). However, ITC is available if the seating capacity of
such motor vehicles is more than 13 persons. Further, ITC cannot be availed for vessels and aircrafts.
For example, Ajay & Co. buys a car for their business. They cannot avail ITC on the same.
Exclusion of ITC on Motor Vehicles & Vessels & Aircraft:-
If someone is in the business of supplying motor vehicles or vessels & aircraft, then ITC will be
For example, a car dealer purchases a car for Rs.20 lakh plus 10 lakh GST and later sold it for 40 lakhs along with Rs.13.60 lakh GST. Since he is a dealer, he can claim ITC of 10 lakhs and pay only Rs.3.60 lakh (13.60 – 10).
If someone is using motor vehicles, vessels & aircraft for transportation of passengers then ITC will be
allowed on the vehicle purchased.
For example, Gita Tours purchased a bus for inter-city transport of passengers. ITC is available.
If a driving school buys a car to give training to students, then the school can claim ITC on the GST paid on the car.
ITC is available on vessels & aircraft used to transport goods from one place to another. Although this is concerning other transporters and not Goods Transport Agencies (GTA).
If someone is availing services of general insurance, servicing, repair and maintenance which is related to motor vehicles, vessels or aircraft, then he is not eligible to avail input tax credit. Following are some of the exceptions:-
ITC cannot be availed for the following goods or services: Food and beverages, Outdoor catering, Beauty
treatment, Health services, Cosmetic and plastic surgery. Although, ITC can be availed if the category
of inward and outward supply is same or the component is a mixed or composite supply under GST.
For example, Ashok Enterprises provides an office party for its employees. Ashok Enterprises cannot claim ITC on the food & beverages served.
ITC is not allowed on any membership fees for gyms, clubs, etc.
For example, R, a Managing Director takes membership of a club and the company pays the membership fees. ITC will not be available to the company or R.
ITC is not allowed in case of travel, benefits given to employees on vacation such as leave or home
For example, Balaji Ltd. provides a travel package to its employees for private holidays. ITC on GST paid by Balaji Ltd. for the holiday package is not allowed. ITC can be availed for travel for business purposes.
ITC is not allowed for any work contract services. ITC for the construction of an immovable property
cannot be availed, other than where the input service is used for further work contract services.
Also, ITC shall not be allowed in case of goods & services received by a person for constructing an immovable property on his own account when such goods & services are to be used in course of business. For example, Vicky Contractors are constructing an immobile property. They cannot avail any ITC on the works contract. However, Vicky hires Shyam Contractors for a part of the works contract. Vicky can avail ITC on the GST charged by Shyam Contractors.
ITC is not available for the person who has made the payment of tax under section 10 in composition scheme in GST law.
ITC is not available for any tax paid due to fraud cases which has resulted into: Non or short tax payment or Excessive refund or ITC utilised. Fraud cases include fraud or wilful misstatements or hiding of facts or confiscation and seizure of goods.
ITC shall not be availed if goods and services are received by a non-resident taxable person or if such
goods and services are used for personal consumption.
From an institution point of view, other than the above list of transactions on which credit cannot be availed, there are other sets of hidden ineligible credits in the form of taxes paid for purchase of petrol or diesel and electricity on which we have been paid VAT and the same cannot be considered as credit as VAT cannot be adjusted against GST.