GST
GST REGISTRATION-CRITERIA-
Turnover of business should be more than 40 lakhs
Turnover of profession should be more than 20 lakhs.
Advantages of registration- You can claim the ITC CREDIT.
Input Tax Credit under GST – Conditions To Claim
Input Credit Helps in Determining the Correct Amount of Working Capital at any Given Point of Time. This is Highly Critical Information from Business Liquidity Standpoint. Read more here
Updated on Jun 05, 2020 - 03:17:22 PM
“Input Tax” in relation to a taxable person, means the Goods and Services Tax charged on him for any supply of goods and/or services to him, which are used or are intended to be used, for the furtherance of his business. Input Tax Credit under GST – Conditions To Claim ITC must be fulfilled and forms one of the most critical activity for every business to settle its tax liability.
ITC is the backbone of GST and a major matter of concern for the registered persons. The conditions for eligibility to ITC and eligible ITC have been prescribed which is more or less in line with pre-GST regime. These rules are also quite particular and stringent in its approach.
Input Tax Credit under GST – Conditions To Claim
A registered person will be eligible to claim Input Tax Credit (ITC) on the fullfilment of the following conditions:
1. Possession of a tax invoice or debit note or document evidencing payment
2. Receipt of goods and/or services
3. Goods delivered by supplier to other person on the direction of a registered person against a document of transfer of title of goods
4. Furnishing of a return
5. Where goods are received in lots or installments ITC will be allowed to be availed when the last lot or installment is received
6. Failure of the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed by recipient will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed
7. No ITC will be allowed if depreciation has been claimed on the tax component of a capital good
8. Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates:
The due date of filing GST Return for September of next Financial year
OR
Date of filing the Annual Returns relevant for that Financial year
For instance, XY Corp, a buyer has a Purchase Invoice was dated 8th July 2017( FY 2017-18), wants to claim GST paid on that purchase. As per the criteria laid down to reckon the time limit:
The Due date of filing GST return for September 2018( belonging to FY 2018-19) is 20th October 2018 and the Date of filing GST Annual Return for FY 2017-18 is 31st December 2018, whichever is earlier will be the time period within which XY Corp has to claim ITC. Therefore, the date is 20th October 2018 and XY Corp can claim this ITC in any of the months between July 2017 to September 2018.
Note: For Debit Notes, above condition must be considered with respect to Original Invoice Date.
9. Common credit of ITC used commonly for
· Effecting exempt and taxable supplies
· Business and non-business activity
10. Since 9 October 2019, a regular taxpayer can claim provisional ITC in GSTR-3B only to the extent of 20% of the ITC available in GSTR-2A. It means the amount of ITC reported in GSTR-3B from 9 October 2019 will be a total of Actual ITC in GSTR-2A and provisional ITC being 20% of actual ITC in GSTR-2A. Hence, matching purchase register or expense ledger with GSTR-2A becomes crucial.
Items on which credit is not allowed
1. Motor vehicles and conveyances except the below cases
2. Such motor vehicles and conveyances are further supplied i.e. sold
3. Transport of passengers
4. used for imparting training on driving, flying, navigating such vehicle or conveyances
5. Transportation of goods
6. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
But if the goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available
Example: Mr. Dev purchases cosmetic creams to supply it to a customer, then credit of ITC paid on purchases will be allowed.
7. Sale of membership in a club, health, fitness centre.
8. rent-a-cab, health insurance and life insurance except the following:
1. Government makes it obligatory for employers to provide it to its employees
2. goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available
Example: Mr. Dev takes the service of rent-a-cab to supply to Mr. Manoj, a customer, then the credit of ITC paid on purchases will be allowed.
9.travel benefits extended to employees on vacation such as leave or home travel concession.
10. Works contract service for construction of an immovable property (except plant & machinery or for providing a further supply of works contract service)
11. Goods and/or services for the construction of an immovable property whether to be used for personal or business use
12. Goods and/or services where tax have been paid under composition scheme
13. Goods and/or services used for personal use
14. Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.
15. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
16. ITC will not be available in the case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.
Cases Where Input Tax Credit under GST Cannot Be Availed
Updated on Jun 05, 2020 - 02:56:49 PM
Specific cases are mentioned under GST where no input tax credit shall be available to the applicant.
Latest Updates
CBIC has from 9 October 2019 notified that only 20% of ITC available in GSTR-2A can be claimed as provisional ITC in GSTR-3B. It means the amount of ITC reported in GSTR-3B from 9 October 2019 will be a total of Actual ITC in GSTR-2A and provisional ITC being 20% of actual ITC in GSTR-2A. Hence, matching purchase register or expense ledger with GSTR-2A becomes crucial.
We are going to discuss the ineligibility of input tax credit in the article with examples.
Cases when ITC is not available under GST
1. Motor vehicles & conveyances
ITC is not available for Motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver).
Further, ITC is not available on vessels and aircraft.
For example, XYZ & Co. buys a car for their business. They cannot claim ITC on the same.
Exceptions to ITC on motor vehicles/vessels/aircrafts
ITC will be available when the vehicle is used for making taxable supplies by the following.
a) Supply of other vehicles or conveyances, vessels or aircrafts.
If you are in the business of supplying cars then ITC will be available.
For example, a car dealer purchases a car for Rs.50 lakh plus 14 lakh GST (ignoring cess calculations). The same car was later sold for 70 lakhs along with Rs.19.60 lakh GST. Since he is a dealer, he can claim ITC of 14 lakhs and pay only Rs.5.60 lakh (19.60 – 14).
b) Transportation of passengers
If you are providing transportation of passengers then ITC will be allowed on the vehicle purchased.
For example, Happy Tours purchased a bus for inter-city transport of passengers. ITC is available.
c) Imparting training on driving, flying, navigating such vehicle or conveyances or vessels or aircrafts, respectively.
A driving school purchases a car to give training to students. The school can claim ITC on the GST paid on the car.
d) Transportation of goods
ITC will be allowed on motor vehicles (and other conveyances) used to transport goods from one place to another. However, this is concerning other transporters and not goods transport agencies (GTA).
Here is a quick view of the Inelgible ITC on Motor Vehicles, Vessels and Aircrafts
2. Food, beverages, club memberships and others
ITC is not for the supply of following goods or services or both:
· Food and beverages
· Outdoor catering
· Beauty treatment
· Health services
· Cosmetic and plastic surgery
However, 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.
Examples-
Ajay Enterprises arranges for an office party for its employees. Ajay Enterprises will not be able to claim ITC on the food & beverages served.
3. Services of general insurance, servicing, repair and maintenance
No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in (1).
Exceptions to ITC on insurance, repair or maintenance
· Same as expections mentioned for motor vehicles/vessels/aircrafts
· where received by a taxable person engaged—
(I) In the manufacture of such motor vehicles, vessels or aircraft; or
(II) In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him
4. Sale of membership in a club, health, fitness centre
No ITC will be allowed on any membership fees for gyms, clubs etc.
Example-
X, a Managing Director has taken membership of a club and the company pays the membership fees. ITC will not be available to the company or Mr. X.
5. Rent-a-cab, life insurance, health insurance
ITC is not available for rent-a-cab, health insurance and life insurance.
However, the following are exceptions, i.e., ITC is available for-
a. Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force
For example, assuming the government passes a rule for all employers to provide mandatory cab services to female staff in night shifts. ABC Ltd. hires a rent-a-cab to provide to transportation to its female staff on night shifts. Then ITC will be available to ABC Ltd. on the GST paid to the rent-a-cab service.
b. If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply
For example, ABC Travels lends out a car to XYZ Travels. Then XYZ Travels can claim ITC on the same.
c. leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as those mentioned for (1).
Read our article on GST impact on cab services.
6. Travel
ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.
For example,
ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed.
ITC will be allowed for travel for business purposes. Please read our article to know more about the impact of GST on air fare and rail fare.
7. Works contract
ITC shall not be available for any work contract services. ITC for the construction of an immovable property cannot be availed, except where the input service is used for further work contract services.
For example, XYZ Contractors are constructing an immovable property. They cannot claim any ITC on the works contract. However, XYZ hires ABC Contractors for a portion of the works contract. XYZ can claim ITC on the GST charged by ABC Contractors.
8. Constructing an immovable property on own account
No ITC is available for goods/services for construction of an immovable property on his own account. Even if such goods/services are used in the course or furtherance of business, ITC will not be available.
But this rule does not apply to plant or machinery. ITC is available on inputs used to manufacture plant and machinery for own use.
Example-
· Ajay Steel Industries constructs an office building for its headquarters. ITC will not be available.
· Ajay Steel Industries also constructs a blast furnace to manufacture steel. ITC is available since it is a plant.
9. Composition Scheme
No ITC would be available to the person who has made the payment of tax under composition scheme in GST law.
Please read our extensive guides on composition scheme under GST and whether you are eligible for it.
10. No ITC for Non-residents
ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only available on any goods imported by him.
Please read our articles on GST on non-residents and the registration process for non-residents.
11. No ITC for personal use
No ITC will be available for the goods/ services used for personal purposed and not for business purposes.
Find out more on how to calculate the amount of common credit applicable for business if you use the same input for both business and personal uses.
12. Free samples and destroyed goods
No ITC is available for goods lost, stolen, destroyed, written off or given off as gift or free samples.
13. No ITC in fraud cases
ITC will not be available for any tax paid due to fraud cases which has resulted into –
1. Non or short tax payment or
2. Excessive refund or
3. ITC utilised or
Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.
14. No ITC on restaurants
As per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, standalone restaurants will charge only 5% GST but cannot enjoy any ITC on the inputs.
However, restaurants as part of hotels with room tariffs exceeding Rs. 7,500 still continue pay 18% GST and enjoy ITC.
McDonald’s charges 5% GST and cannot claim any ITC.
Taj’s Grill by the Pool restaurant in Kolkata is a part of the Taj Bengal hotel and so it will charge 18% GST while enjoying ITC.
Read our analysis of the impact of GST on restaurants.
RATES OF GST-
TEXTITLES= 5 PERCENT
(2.5 % CGST AND 2.5 % SGST)
COMMISSION,BROKERAGE,RENT= 18 PERCENT.
(9 PERECENT CGST AND 9 PERCENT SGST.)
LABOUR OF PROCESSING OF DIAMONDS- 1.5 PERCENT-
(0.75 PERCENT CGST AND 0.75 PERCENT SGST.)
HOTELS WITH MOTELS AND OVERNIGHT STAY- which offer composite package of stay and food with room tariffs over 7500/- per day-
rate=18 percent-
(9 percent CGST AND 9 percent SGST.)
Other restaurants -only supplying food- 5 percent-
(2.5 percent CGST AND 2.5 PERCENT SGST.)
ROUGH DIAMONDS= 0.25 PERCENT
(0.25 PERCENT CGST AND 0.25 PERCENT SGST.)
POLISHED DIAMONDS AND GOLD= 3 PERCENT- to be divided equally between CGST AND SGST.
FLAT-
5% rate for under-construction flats, and 1% for affordable housing- be divided equally between CGST AND SGST.
-Sale of flats after issue of completion certificate not to attract GST: FinMin
The finance ministry Saturday said GST will not be levied on buyers of real estate properties for which completion certificate is issued at the time of sale.
However, Goods and Services Tax (GST) is applicable on sale of under-construction property or ready to move in flats where completion certificate is not issued at the time of sale, it said.
Regards,
C.A.NIKUNJ SHAH-CHARTERED ACCOUNTANT
For Naresh S.Shah & Co.
Chartered Accountants
1. Head office -->no. 32,Ground floor, Panchratna Building, Opera House, near Charni road Station, Mumbai 400004, Phone - 9769755316
2. Common email contact@CAnaresh.com (gmail email)
Cell numbers of partners
CA Naresh Shah - 9820021783 (whats app)
CA Nikunj Shah - 9820442177(whats app) / Direct email - nikunjn@rediffmail.com
CA Kunjan Shah - 9222 9222 92(whats app) / direct email kunjan@CAnaresh.com