Ineligible/blocked credit under GST

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GST Doctor on Mon Apr 24 2023


As per section 17(5) of CGST Act 2017, certain types of input credits are not allowed unless it is used for same nature of outward services or in the nature of composite supply or mixed supply or wherein it is under obligation of any law which is in force for the time being. We are trying to compile a checklist for Ineligible/blocked credit under GST.

Relevant Section: Section 17(5) of CGST Act 2017

Here is the list of flags to look for while doing GST audit:

1) renting or hiring of motor vehicleEarlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause. According to that Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) is blocked credit otherwise it is allowed.
2) renting or hiring of vessels and aircraftsallowed when used for transportation of goods
3) Supply of food beverages, outdoor catering-
4) Personal benefits to employeesExample:
Health services
Beauty treatment
Cosmetic and plastic surgery
Life and health insurance
Membership of club, health and fitness centre
Travel benefits on vacation
5) Works contract services when supplied for construction of an immovable property (other than plant and machinery)Note: available when it is input for further supply of works contract service
construction: includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property
plant and machinery: means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises
6) Goods or Services used for personal consumptionsince they were not used for furtherance of business
7) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samplessince they were not used for furtherance of business
8) Any tax paid in accordance with the provisions of sections 74, 129 and 130section 74 (Tax not / short paid due to fraud etc),
section 129 (Detention, seizure, and release of goods and conveyance in transit),
section 130 (confiscation of goods or conveyance and levy of penalty)

This is just a short list of blocked credits which also in some cases may be allowed. Please use these only as checklist and refer to the CGST Act and Rules for further clarification.

Effect of Covid-19 Pandemic on blocked credits

In this time of Covid-19 Pandemic, the Ministry of Home Affairs (‘MHA’) has issued the Order No. Order No. 40-3/2020-DM-I (A) dated 15th April, 2020 by exercising of power conferred under section 10(2) (i) of Disaster Management Act, 2005

As per the Order issued by MHA, the offices, workplaces, factories and establishments have to implement the Standard Operating Procedure (‘SOP’) prescribed in the Annexure-I and II wherein serval measures to be taken and adopted for their employees. As per Annexure-II of the Order, the employers have to facilitate following major aspects for their employees:

  1. Disinfected all the areas of workplaces/offices/factories/establishments wherein the employees probably visit such as cafeteria, entrance gate, meeting room, conference room, washrooms, equipment etc.,
  2. Transportation facility for employees coming from outside,
  3. Medical Insurance,
  4. Thermal scanning and Cameras,
  5. Provision for hand wash and Sanitizer, and,
  6. Others

Since, it is under obligation of the law which is in force for the time being. Eligibility may be examined at the time of GST Audit for this period.

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