Blocked Credit Under GST – Section 17(5)
Section 17(5) of Central Goods and Services Tax(CGST) Act,2017 also referred to as blocked credits, is a very important provision for every regular taxpayer under GST. It defines a list of purchases on which GST is paid but businesses cannot claim these as the Input Tax Credit (ITC).
Input Tax Credit (ITC) is a mechanism that allows taxpayers to claim credit for the tax paid on inputs (i.e., goods and services) used in the course of their business. Under the GST regime, the ITC is allowed to be claimed against the output tax liability, which is the tax payable on the taxable supplies made by the taxpayer. The ITC can be claimed on the tax paid on inputs, capital goods, and input services.
Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017 provides for the list of items for which Input Tax Credit (ITC) is blocked or ineligible. The items on this list cannot be used to claim ITC under any circumstances. The list of ineligible or blocked ITC under GST Section 17(5) includes:
1. Motor vehicles and other conveyances (except when they are used for making taxable supplies, such as in the case of transportation of goods or passengers, or imparting training on driving, flying, navigating, etc.)
2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance and health insurance (except when they are used in the course or furtherance of business)
3. Rent-a-cab, life insurance, and health insurance (except when they are used for providing the same category of services)
4. 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 services
5. Goods or services received by a taxable person for construction of an immovable property on his own account (other than plant and machinery), except where it is an input service for further supply of works contract services
6. Goods or services used for personal consumption
7. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
8. Any tax paid in accordance with the provisions of sections 74, 129, and 130 of the CGST Act, 2017 (related to the recovery of tax, seizure and confiscation of goods and conveyances, and confiscation of goods and imposition of penalty).
9.Accordingly,for composition taxable persons whether or not supplying goods or services, ITC is not available.
Non-resident taxable person deposits tax in advance. They can claim ITC on IGST paid on import of goods, but cannot claim ITC on any other domestic purchases.
It is important for taxpayers to be aware of the items on the list of ineligible or blocked ITC and not claim ITC on such items as it could lead to penalties and interest under the GST law.
Section 17 (5) of CGST Act must be followed mandatorily, otherwise, the recipient or buyer must reverse such wrongfully claimed ITC. Further, they will incur interest at the rate of 24% from the date of such claim until the date of reversal.
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