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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
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
GOODS under GST :
Every kind of movable property,
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
But the worst part is that if any product is gifted to employee, then no ITC shall
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.