India 
Canada
Input Tax Credit (ITC) is a pivotal component of India’s Goods and Services Tax (GST) framework, designed to mitigate the cascading effect of taxes by allowing businesses to offset the tax they pay on inputs against the tax they collect on outputs.
Detailed Analysis of Blocked ITC Categories
Section 17(5) of the CGST Act specifies various categories where ITC is ineligible. Below is an in-depth examination of these categories, supplemented with examples and tabular representations for clarity. ​
1. Motor Vehicles and Conveyances
Provision: ITC on motor vehicles and conveyances is blocked except when the vehicle is:
- Used for further supply (e.g., resale of vehicles).
- Used for transportation of passengers.
- Used for imparting training on driving, flying, or navigating such vehicles.
- Used for transportation of goods.
Examples:
| Scenario | ITC Eligibility | Reason |
| A company purchases a sedan for executive transport. | Not Eligible | Used for personal transportation. |
| A taxi service company buys cars for operations | Eligible | Used for passenger transportation. |
| A logistics firm acquires trucks for goods delivery. | Eligible | Used for transportation of goods. |
| A driving school purchases vehicle for training. | Eligible | Used for training purposes. |
2. Food, Beverages, and Related Services
Provision: ITC is blocked on expenses related to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except when:
- The inward supply is used to make an outward taxable supply of the same category.
- The goods or services are part of a composite or mixed supply where the principal supply is taxable.
Examples:
| Scenario | ITC Eligibility | Reason |
| A company arranges catering for employee events. | Not Eligible | Considered personal consumption. |
| A hospital provides health services to patients | Not Eligible | Health services are specifically blocked under Section 17(5). |
| A catering business purchases food for services. | Eligible | Used for transportation of goods. |
| A beauty salon buys cosmetic products for clients. | Eligible | Inputs used for taxable outward supply of beauty treatment services. |
3. Membership Fees for Clubs and Fitness Centers
Provision: ITC is not available for membership fees paid for clubs, health, and fitness centers, as these are considered personal expenses.
Examples:
| Scenario | ITC Eligibility | Reason |
| Company pays for employee gym memberships. | Not Eligible | Viewed as personal benefit to employees. |
| Individual subscribes to a health | Not Eligible | Personal expense, not related to business. |
4. Rent-a-Cab, Life Insurance, and Health Insurance
Provision: ITC is blocked on services like rent-a-cab, life insurance, and health insurance, unless:
- The services are mandated by law for employees.
- There is a further supply of such services.
Examples:
| Scenario | ITC Eligibility | Reason |
| Company provides optional health insurance. | Not Eligible | Not mandated by law. |
| Company offers health insurance as per legal requirement. | Not Eligible | Statutory obligation. |
| Business hires cabs for employee commute. | Not Eligible | Rent-a-cab services are specifically blocked. |
5. Construction of Immovable Property
Provision: ITC is blocked for goods or services used in the construction of an immovable property (excluding plant and machinery) on one’s own account, even when used in the course of business.
Examples:
| Scenario | ITC Eligibility | Reason |
| Business constructs a new office building | Not Eligible | Self-construction of immovable property. |
| Contractor builds an office for a client. | Eligible | Works contract services provided to another person. |
6. Goods Lost, Stolen, Destroyed, or Given as Gifts or Free Samples
Provision: ITC is not available for goods that are lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
Examples:
| Scenario | ITC Eligibility | Reason |
| Retailer provides free samples of a product | Not Eligible | Goods given as free samples. |
| Goods damaged in transit and written off. | Not Eligible | Eligible Goods destroyed and written off. |
| Inventory lost due to theft. | Not Eligible | Eligible Goods destroyed and written off. |
7. Personal Consumption
Provision: ITC is blocked for goods or services used for personal consumption and not for business purposes.
Examples:
| Scenario | ITC Eligibility | Reason |
| Purchase of office supplies for business | Eligible | Used for business purposes. |
| Purchase of home appliances for personal use. | Not Eligible | Personal consumption. |
8. Tax Paid Due to Fraud or Non-Compliance
Provision: ITC cannot be claimed for tax paid due to fraud, willful misstatement, suppression of facts, or penalties imposed under GST laws.
Examples:
| Scenario | ITC Eligibility | Reason |
| Tax paid on underreported sales discovered in audit. | Not Eligible | Tax paid due to non-compliance. |
| Penalty imposed for tax evasion. | Not Eligible | Penalty due to fraudulent activities. |
Consequences of Claiming Ineligible ITC
Claiming ITC on blocked credits can result in:
- Interest and Penalties: Businesses may be liable for interest and penalties on ineligible ITC claims.
- Reversal of Credit: The ineligible credit must be reversed, affecting business cash flow.
- Legal Consequences: Persistent non-compliance can lead to legal actions and damage to business reputation.
Conclusion
A thorough understanding of blocked ITC under GST is essential for businesses to ensure compliance and prevent financial losses. By adhering to Section 17(5) of the CGST Act, businesses can avoid penalties and manage their tax liabilities effectively.
If you have any questions, please don’t hesitate to reach out to us using the contact details available on our website or the information provided below.
Regards,
CA. Akshay
Partner
Mobile: 8527238625
Email: infodelhi@corporategenie.in
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