According to Section 17, the input tax credit is available only to the extent of the goods or services used for the business purpose or effecting taxable supplies including zero rated supplies as discussed earlier in Rule 42 & 43.
Apart from the above, there are goods and services which are not eligible for input tax credit, have been listed out under section 17 (5) as below:
1. Motor Vehicles and other conveyances Input tax credit on purchase, maintenance, insurance in respect of motor vehicles are not eligible.
Input tax credit is available only when they are used for providing the following taxable supplies:
a. Further supply of such vehicles or conveyances
b. Transportation of passengers
c. Imparting training on driving, flying, navigating such vehicles or conveyances
d. Transportation of goods
2. Supply of Goods or Services not eligible for Input Tax Credit:
The following goods or services are not eligible for input tax credit:
a. Food and beverages
b. Outdoor catering
c. Beauty treatment
d. Health services
e. Cosmetic and plastic surgery
Note: If the above goods or services are used to provide outward taxable supplies of the same category then, input tax credit is available.
a. Membership of a club, health and fitness centre
b. Rent-a-cab, life insurance and health insurance – input tax credit available only where the same is provided to the employees by the employer as a statutory obligatory under any law as notified by the Government or such services are used to provide outward taxable supplies of the same category
c. Travel benefits extended to employees on vacation such as leave or home travel concession
3. Works Contract Service
Works contract services are not eligible for input tax credit when supplied for construction of an immovable property other than plant and machinery except where it is used as input service for further supply of works contract service.
Example 1: If ABC, a manufacturing company who manufactures steel, gives contract to XYZ, a construction company to construct a building for its office, ABC cannot take input tax credit on the invoice issued by XYZ. While XYZ receives the service of painting of the office, from DEF, a service provider, XYZ can take input tax credit of the invoice issued by DEF as it is used as input service for providing works contact service of constructing the office to ABC.
4. Construction of Immovable Property by own account
When the goods or services received for construction of an immovable property other than plant and machinery by own account including when such goods or services or both are used in the course or furtherance of business.
Example 2: XYZ, a building contractor company, builds an office for its own use, it cannot take input tax credit.
Note: ‘Construction’ as mentioned in the point No.3 & 4, includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation to the said immovable property.
Example 3: ABC as in the Example 1, makes some repair work in its office building and treats the expenditure as revenue expenditure, then it can take input tax credit. If the expenses are capitalised in the books, then no ITC is available.
5. Composition Scheme
Composition dealers who pay tax under section 10, cannot take input tax credit on the goods or services or both received by them.
Non-resident taxable person cannot take input tax credit on the goods or services or both received except on goods imported by him.
7. Personal Consumption
When the goods or services are used for personal consumption, input tax credit is not available.
8. Lost, Stolen, Destroyed, Free Samples, Gifts
Input tax credit is not available on the goods which are lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
9. Fraud, Seizure and Confiscation
Input tax credit is not available on any tax paid under the circumstances of the following sections:
Section 74 – Input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts.
Section 129 – Input tax credit on the goods seized.
Section 130 – Input tax credit on the goods confiscated
Note: 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 the below:
• Land, building or any other civil structures
• Telecommunication towers
• Pipelines laid outside the factory premises.