GST Jamku AIApportionment of credit and blocked credits.
Section 17(1)
Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
Apportionment of Credit and Blocked Credits
When a registered person uses goods or services for both business and other purposes, the credit amount is limited to the input tax related to the business purposes.
Business and Non-Business Usage
In situations where goods or services are utilized by a registered person for both business-related activities and other purposes, the credit allowed is specifically tied to the portion that directly contributes to the business.
Restrictions on Credit
The amount of credit available is constrained, and only the input tax linked to the business-related purposes is eligible for consideration. This ensures that the credit claimed aligns with the legitimate business expenses associated with the usage of goods or services.
Section 17(2)
Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Input Tax Credit Apportionment
When a registered person utilizes goods or services for both taxable supplies, including zero-rated supplies under this Act or the Integrated Goods and Services Tax Act, and exempt supplies under these Acts, certain limitations apply. In such cases, the credit amount is restricted to the input tax portion directly linked to the taxable supplies, including zero-rated supplies.
Understanding Section 17(2)
In situations where goods or services are employed for a mix of taxable and exempt supplies, the registered person needs to carefully apportion the input tax credit. Specifically, only the portion of input tax related to taxable supplies, including zero-rated supplies, is eligible for credit. This provision ensures a fair and accurate allocation of credit in cases of mixed usage.
Ensuring Proper Credit Allocation
To comply with Section 17(2), registered persons must diligently assess and allocate input tax credits based on the nature of their supplies. This process is crucial for maintaining transparency and adhering to the regulations outlined in the Integrated Goods and Services Tax Act. By restricting the credit to the applicable portion, this provision aims to uphold the integrity of the tax credit system while accommodating diverse business scenarios.
Section 17(3)
The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Explanation.—For the purposes of this sub-section, the expression "value of exempt supply" shall not include the value of activities or transactions specified in Schedule III, except,—
(i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule.
Value of Exempt Supply
The value of exempt supply under sub-section (2) will be determined as prescribed. This value includes supplies for which the recipient is responsible for paying tax on a reverse charge basis. Additionally, it covers transactions in securities, the sale of land, and, with the exception of clause (b) of paragraph 5 of Schedule II, the sale of buildings.
Explanation: For the purposes of this sub-section, the term "value of exempt supply" excludes the value of activities or transactions specified in Schedule III, except for:
(i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule.
Section 17(4)
A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
Provided further that the restriction of fifty per cent shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
In simple terms, Section 17(4) of the Goods and Services Tax (GST) Act applies to banking companies, financial institutions, and non-banking financial companies. These entities are involved in activities like accepting deposits and providing loans or advances. The section gives them a choice between two options, affecting the treatment of their input tax credit.
Compliance with Sub-section (2)
The first option is for these companies to comply with the provisions of sub-section (2). This involves following certain rules and regulations outlined in the GST Act.
Availing 50% of Input Tax Credit Monthly
The second option allows them to avail, every month, an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods, and input services. The remaining fifty per cent will lapse, meaning it won't be available for use.
Important Conditions and Restrictions
- Once the choice between these options is made, it cannot be withdrawn for the remaining part of the financial year. This emphasizes the importance of careful consideration before making a decision.
- The restriction of fifty per cent does not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number (PAN).
In summary, Section 17(4) of the GST Act provides flexibility for certain financial entities in managing their input tax credit, with options that come with conditions and considerations for the entire financial year.
Section 17(5)
Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
(aa) vessels and aircraft except when they are used—
(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available—
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) 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;
(b) the following supply of goods or services or both—
- (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.]
(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
Explanation.—For the purposes of clauses (c) and (d), the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013);
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
- (i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
Notwithstanding the content of certain sections, input tax credit faces restrictions on specific categories. Here are the details:
1. Motor Vehicles for Transportation of Persons (Section 16 and Section 18)
Input tax credit is not available for motor vehicles designed to carry not more than thirteen persons, including the driver. However, exceptions exist when these vehicles are used for the taxable supplies of further supply, transportation of passengers, or driving training.
2. Vessels and Aircraft (Section 16 and Section 18)
Similar restrictions apply to vessels and aircraft. Input tax credit is not allowed unless these are used for taxable supplies, transportation of goods, or training purposes in navigation or flying.
3. Services Related to Motor Vehicles, Vessels, or Aircraft (Section 16 and Section 18)
Specifically, services of general insurance, servicing, repair, and maintenance related to the mentioned motor vehicles, vessels, or aircraft are not eligible for input tax credit. However, exceptions exist when used for specified purposes or received by taxable persons engaged in manufacturing or supplying general insurance services for the mentioned vehicles.
4. Excluded Supplies of Goods or Services (Section 16 and Section 18)
Certain goods or services are explicitly excluded from input tax credit eligibility:
a. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting, or hiring of specified vehicles unless used for specified purposes.
b. Membership of clubs, health and fitness centers.
c. Travel benefits for employees on vacation, unless legally obligatory for the employer.
5. Works Contract Services (Section 16 and Section 18)
Input tax credit is not available for works contract services when supplied for the construction of an immovable property, excluding plant and machinery. However, an exception is made if it is an input service for further supply of works contract service.
6. Goods or Services for Self-Construction (Section 16 and Section 18)
Goods or services received by a taxable person for constructing an immovable property, excluding plant or machinery, are not eligible for input tax credit when used for personal use or business purposes.
7. Tax Paid under Section 10 (Section 16 and Section 18)
Goods or services on which tax has been paid under Section 10 are not eligible for input tax credit.
8. Non-Resident Taxable Person (Section 16 and Section 18)
Goods or services received by a non-resident taxable person, except for goods imported by them, are not eligible for input tax credit.
9. Corporate Social Responsibility (CSR) Activities (Section 16 and Section 18)
Goods or services received by a taxable person for activities related to corporate social responsibility under the Companies Act, 2013, are not eligible for input tax credit.
10. Personal Consumption and Other Situations (Section 16 and Section 18)
Goods or services used for personal consumption, as well as those lost, stolen, destroyed, written off, disposed of as gifts, or provided as free samples, do not qualify for input tax credit. Additionally, any tax paid under the provisions of Sections 74, 129, and 130 is not eligible for input tax credit.
In conclusion, understanding these restrictions is crucial for businesses to effectively manage their input tax credit claims.
Section 17(6)
The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.
Explanation.— For the purposes of this Chapter and Chapter VI, the expression "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.
The government has the authority to specify how the credit mentioned in sub-sections (1) and (2) should be assigned.
Explanation: For the understanding of this Chapter and Chapter VI, the term "plant and machinery" is defined as apparatus, equipment, and machinery that is firmly attached to the earth through a foundation or structural support. These are utilized for the production of outward supply of goods or services, and this definition includes the mentioned foundation and structural supports. However, it explicitly excludes:
1. Exclusion of Land, Building, or Civil Structures The definition does not encompass land, buildings, or any other civil structures.
2. Exclusion of Telecommunication Towers Telecommunication towers are not considered as part of "plant and machinery" under this definition.
3. Exclusion of Pipelines Outside Factory Premises Pipelines laid outside the factory premises are also excluded from the scope of "plant and machinery."
In summary, Section 17(6) empowers the government to specify how credit is allocated, and the term "plant and machinery" is clarified to include certain fixed assets while excluding land, buildings, telecommunication towers, and pipelines outside factory premises.