ITC on Diwali Gifts

Availability of ITC on Diwali Gifts

Diwali the most widely celebrated festival in India is approaching within next five

days and now for us it is the time to distribute Diwali gifts, but this time the major

tax reform i.e. the implementation of the GST has put the businesses to face

questions like “Whether the input tax credit would be available for the purchase

of Diwali Gifts?”.

so whether the input tax credit on Diwali Gifts is available or not becomes a very

big question as a lot of investment is made on purchasing of these gifts.

Analysis made according to GST provision:

As per section 16 a taxpayer is entitled to take credit of input tax charged on any

supply of goods or services to him which are used in the course or furtherance of

his business.

Where, The Course of business means usual business practice such as

manufacturing, trading etc. It implies those transactions which are directly related

to business without which business cannot be run, like purchase of raw material,

capital goods etc.

Whereas, Furtherance of business which means the act of advancement or

promotion of business for its sustained growth and profitability.

Thus, Diwali gifts which are given to persons related to a business will definitely

fall under the definition of furtherance of business because these gifts are

generally given to sustain good business relations for the advancement of

business activity.

GOODS under GST :

 Every kind of movable property,

 Actionable claims,

 Growing crops, grass and things attached to or forming part of the land

which are agreed to be severed before supply or under a contract of supply

But does not include Money and Securities.

In order to call a commodity as goods, it is necessary that they are used for the

purpose of supply. To call a particular transaction as supply, it should have

consideration involved or should be mentioned under Schedule I of the Act.

But there is neither any consideration nor is there any reference of gifts under

Schedule I except of those given to employees.

In such circumstances, these Diwali gifts move out of the ambit of “Goods” from

the prospective of business unit purchasing such gifts. It should be noted that the

same Diwali gift shall be treated as supply of goods for the vendor who have sold

such gifts and tax should be charged by the supplier.

Therefore it can be construed that Diwali gifts fulfill the conditions of Section 16

for claiming of input tax credit.

What about the sweets and beverages purchased for distribution to

employees/workers on Diwali?

Section 17(5) (b) (i) specifically restricts the input tax credit with respect to food

and beverages which means it is a blocked credit. Hence any sweets or beverages

bought for workers/employees shall not be eligible for claiming input tax credit.

Gifts given to the employees on Diwali:

Any amount payable as salary against the services of the employee shall not

attract any GST because it is not treated as supply.

As per GST law, any gifts from employer to employee exceeding the value of

Rs.50, 000 shall be liable to GST in India which means that if the employer gifts

anything over Rs.50, 000, then that shall be liable to tax under GST.

Hence, if the value of gift is more than Rs.50, 000 then you are liable to pay GST in

India.

But the worst part is that if any product is gifted to employee, then no ITC shall

be allowed.

Thus, we come to the conclusion that A taxpayer shall be eligible to claim input

tax credit on the Diwali gifts purchased by it and distributed to persons related to

business but there shall be no ITC with respect to the sweets and other eatables

purchased for distribution to workers/employees or any gifts distributed to the

employees by the employer.