Input Tax Credit is available of Inputs, Capital Goods & Input
Services

• 
  
  
  Inputs: Inputs are those goods which are not capital goods and are used in course or furtherance of business.
  
• 
  
  
  
  Capital goods: Capital goods are those goods which are capitalized in books of accounts of recipient who shall avail ITC and are used in course or furtherance of business.
  
• 
  
  
  
  Input Service: Input services are those services which are used in course or furtherance of business.

Section 16: Eligibility & Conditions for Claiming
ITC

Section 16(1)

Every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business.

Section 16(2)

Conditions for Availing Credit

1. Section16 (2)(a): Possession
   of tax
   invoice or debit note or other documents
   as prescribed
   Following are documents that should be in
   possession of recipient
   to avail ITC: Rule 36
   1. Tax invoice
   2. Debit note
   3. Self – Invoice
   4. Revised tax invoice
   5. Bill of entry, to avail ITC in respect of IGST paid on
      imports.
      (Customs) as IGST is payable.
   6. ISD invoice
2. Section 16 (2) (aa): Input tax credit in respect of any supply of goods or services or both is available to a registered person only if the details of the input tax credit in respect of said supply has been furnished by the supplier in the statement of outward supplies (GSTR-1) and such details have been communicated to the recipient of such invoice/debit note in the manner specified under section 37.
3. Section 16 (2) (b): Receipt of goods or service: ITC can be availed by recipient only after goods or services are received.
   
   1. Proviso to 16 (2) (b): When goods are received in lots or instalments the registered person shall be able to avail ITC only upon receipt of last lot or instalment.
   2. Explanation to 16 (2) (b): For Purpose of this clause, it shall be deemed that the registered person has received goods, Where the Goods are delivered by supplier to recipient on direction of such registered person by way of transferring document of title to goods
4. Section 16(2) (c): The tax charged in respect of such supply by supplier to recipient has been actually paid to Government either by utilizing ITC or by Cash.
5. Section 16(2) (ba): Input tax credit with respect to a supply can be availed only if such credit has not been restricted as per the details communicated to the taxpayer under section 38.[Amendment] The details of ITC are communicated to the recipient through Form GSTR-2B, which contains a table/list of ineligible ITC also. By virtue of insertion of this clause w.e.f. 01.10.2022, it is statutorily denied to avail such ITC which is ineligible as per Form GSTR-2B. At present, GSTR-2B declares any credit as ineligible ITC, if supplier files his GSTR-1 after the time period mentioned in Sec. 16(4) or if ‘Place of Supply’ of any supply and ‘Location of the Supplier’ is same State which is different from the State of the recipient, etc. [Clause (ba)inserted by Finance Act, 2022, w.e.f. 01.10.2022, vide NN 18/2022 – CT, dated 28.09.2022]
6. Section 16(2)(d): Recipient has to furnished return u/s 39. Person claiming ITC must furnish the information relating to inward supply in the return covered u/s 39 i.e., GSTR3B.
   1. Proviso to 16(2): If recipient fails to pay the value of supply of goods or service and tax amount to supplier of goods or service within a period of 180 days from date of issue of invoice then the recipient shall add to his output tax liability an amount equal to ITC that he had wrongly availed earlier along with interest. Interest @ 18% pa shall be payable from the date of availing ITC upto the date of adding such amount to output tax. If recipient makes the payment of the amount towards value of supply of goods or service and tax to supplier after 180 days, then the recipient can avail ITC of same.
   2. Exception:
      1. Suppliers on which tax is payable under RCM (Reverse charge mechanism)
      2. Supplies made without consideration
      3. Any amount that supplier is liable to pay but increased by recipient on behalf of supplier

Section 16(3)

Depreciation Tax Component
Where registered person has claimed depreciation tax component of cost of capital goods under provisions of Income Tax Act 1961, the ITC shall not be allowed. In relation to input tax paid on such capital goods

Section 16(4)

Time limit to avail ITC 30th November of following the financial year in which such invoice is raised or relating to such debit note pertains. OR Actual date of filing annual returns for relevant F.Y Whichever is earlier.

Section-17: Apportionments of Credit and Blocked
Credits

Section 17 (1)

Goods or services partly Used for business and partly for non-business purposes Where the goods or service or both are used by registered person partly for
business and partly for non-business purposes, the credit shall be restricted to so much of input tax as in Attributable to business purpose.

Section 17 (2)

Used partly for making taxable (including Zero rated supplies) supplies & partly for business and partly for exempt supplies Where the goods or service or both are used by registered partly for making taxable (including Zero rated supplies) supplies & partly for business and partly for exempt supplies, the credit shall be restricted to so much of input tax as in Attributable to taxable supplies including zero rated Supplies

Section 17 (3)

Exempt supplies include

supplies charged to tax under reverse charge, transactions in securities, sale of land, sale of building when entire consideration is received charge transactions in securities, sale of land, sale of building when entire consideration is received post completion certificate (All other items of Schedule III, ITC will not be required to be reversed, but in case of Sale of Land & Sale of Building ITC will be required to be reversed)
Note :- The value of Exempted Supply in respect of

1. Land & Building – Value adopted for paying stamp duty
2. Security – 1% of Sale value of security

Section 17 (4)

Special provision for banking companies
and NBFC’s

OPTION 1 : Avail Proportionate as per Section 17(2)
OPTION 2: Every Month Avail 50% Of eligible ITC in that month

• Remaining 50% ITC will lapse
• The restriction of 50% shall not apply to tax paid on supplies made by one registered person to another registered person having same PAN.
• Option once exercised cannot be withdrawn during remaining part of the financial year

Section 17 (5)

Blocked Credit i.e., Non-Availability of ITC in Certain Cases

(a) Motor Vehicle for transportation of persons having approved seating capacity of not more than 13 persons
(including the driver) except when they are used for:

1. Further supply of such vehicles or conveyances; or
2. Transportation of passengers; or
3. Imparting training on driving, flying, navigating such vehicles or conveyances;

(aa) Vessel and Aircraft except when they are used for –

1. For making the following taxable supplies, namely –
   1. further supply of such vessels or aircraft, or
   2. transportation of passengers, or
   3. imparting training on navigating such vessels, or
   4. imparting training on flying such aircraft
2. For transportation of Goods.

(ab) Services of general insurance, repair and maintenance in respect of motor vehicles, vessels and aircraft on which credit is available is allowed.

Examples

1. ITC on cars purchased by a manufacturing company for official use of its employees is blocked.
2. ITC on cars purchased by a car dealer for sale to customers is allowed.
3. ITC on cars purchased by a company engaged in renting out cars for transportation of passengers, is allowed.
4. ITC on cars purchased by a car driving school is allowed.
5. ITC on buses (seating capacity for 24 persons) purchased by a company for transportation of its employees from their residence to office and back, is allowed.
6. ITC on trucks purchased by a company for transportation of its finished goods is allowed.
7. ITC on aircraft purchased by a manufacturing company for official use of its CEO is blocked.
8. ITC on aircraft purchased by an Aviation School providing training on flying aircrafts, is allowed.
9. ITC on general insurance taken on a car used by employees of a manufacturing company for official purposes, is blocked.
10. ITC on maintenance & repair services availed by a company for a truck used for transporting its finished goods, is allowed.
11. ITC on general insurance services taken on cars manufactured by a car manufacturing company is allowed.

(b) Food & Beverages, Outdoor Catering, Beauty treatment etc. except when they are used for

1. Supply of –
   1. food and beverages,
   2. outdoor catering,
   3. beauty treatment,
   4. health services,
   5. cosmetic and plastic surgery,
      • However, ITC would be available when inward supply of goods or services or both of a particular category 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
      • ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.
2. Membership of a club, health and fitness center;
   ITC would be admissible where it is obligatory
   for an employer to provide such supplies to its employees under any
   law for the time being in force.
3. Travel benefits extended to employees on vacation such as leave or home travel concession; ITC would be admissible where it is obligatory
   for an employer to provide such supplies to its employees under any law for the time being in force.
4. Rent-a-Cab Life Insurance & Health Insurance However, ITC would be available when inward supply of goods or services or both of a particular category 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; ITC would be admissible where it is obligatory
   for an employer to provide such supplies to its employees under any law for the time being in force.

(c) Works contract services when supplied for construction of an immovable property

Except

1. For further supply of same category service (Sub contracting) :
2. For construction of plant & Machinery* ITC is allowed to all irrespective of their line of Business
3. When ITC on works contract service is not capitalized (i.e. if Expense charged to revenue ITC is allowed)

* Plant & Machinery includes foundation and structural support But Exclude –

1. Land & Building, Civil structure
2. Telecommunication Towers
3. Pipeline laid outside the factory

Examples

1. ITC on works contracts services availed by a software example company for construction of its office, is blocked.
2. CD & Co., a works contractor of Noida, has been awarded a contract for construction of a commercial complex in Lucknow. The firm avails services of EF & Co., a local works contractor of Lucknow, for the construction of complex. contract services availed by CD & Co., is allowed. ITC on such works
3. ITC on works contract services availed by an automobile company for construction of a foundation on which a machinery (to be used in the production process) is to be mounted permanently, is allowed.

(d) Goods or services or both received by a taxable person for construction of an immovable property: Except (Same as point No. c)

Examples

1. A company buys cement, tiles etc. and avails the services of an architect for construction of its office building. ITC on such goods and services is blocked.
2. MN & Constructions procures cement, paint, iron rods and services of architects and interior designers for construction of a commercial complex for one of its clients. ITC on such goods and services is allowed to MN & Co.
3. A company buys cement, tiles etc. and avails the services of an architect for renovation of its office building. The company has booked such expenditure in its profit and loss account. ITC on such goods and services is allowed.
4. ITC on goods and/or services used by an automobile company for construction of a foundation on which a machinery (to be used in the production process) is to be mounted permanently, is allowed.

(e) Inward Supply of Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme

(f) Goods or services or both received by a non-resident taxable person except on goods imported by him;

(g) Goods or services or both used for personal consumption;

Examples

1. Mr. X owns a retail showroom of tyres and tyre tubes.He takes 4 tyres from the showroom for his personal car.Being used for personal consumption, ITC on such 4 tyres is blocked.

(h) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples;

(i) Any tax paid in accordance with the provisions of sections 74
(Tax not / short paid due to fraud etc.), 129 (Detention, seizure and release of goods and conveyance in transit) and 130 (confiscation of goods or conveyance and levy of penalty)