Apportionment of GST credit and Blocked Credits under Section 17(5)
Section 17(1) to Section 17(4) deals with when Input tax credit can be claimed, while ineligible or blocked credits under GST are dealt with under Section 17(5) of the CGST act.
Apportionment of credit – Section 17
Goods and Service tax Input credit is available to taxpayers. However, there are some situations mentioned in Section 17 of the Central GST Act 2017 where input credit will not be available.
(1) When goods and services are used by the registered persons partly for the purpose of business and partly for another purpose. Then, a taxpayer can claim Input credit on those goods and services which are used for the purpose of business.
(2) Where the goods and services are used by the registered person for effecting taxable supplies including zero-rated supplies and partly producing exempt supplies. Then, Input Tax Credit shall be available for taxable supplies including zero-rated but not exempt supplies.
|Type of Supplies||ITC available?|
|Taxable supply( 5%, 12%,18%,28%)||Yes|
|Zero Rated Supply||Yes|
A zero rate is also a rate in GST.
(3) The value of exempt supplies refer above in sub-section (2) shall as may be prescribed and will include supplies on which the service receiver is liable to pay tax on the Reverse Charge mechanism, a transaction in securities, sale of land, and sale of the building.
(4) A banking company/financial institution/NBFC engaged in supplying services by way of
- Accepting deposits,
- Extending loans and advances
- shall have the option of either comply with the provisions of subsection(2), or avail of, every month an amount equal to 50% of the eligible input tax credit on inputs, capital goods, and input services in that month rest shall lapse.
Once the option is exercised shall not be withdrawn during the remaining part of the year.
The restriction of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN number.
Blocked credit under GST- Section 17(5) of the CGST Act
Following is the list of goods and services which is considered as blocked credit under GST, governed by Section 17(5) of the CGST act.
Notwithstanding anything contained in sub-section (1) of Section 16 (Eligibility criteria to claim credit) and sub-section(1) of Section 18, the input tax credit shall not be eligible in respect of the following-
Clause (a) Motor Vehicles and other conveyance having approved seating capacity of not more than thirteen persons(including the driver)
Except when used for
- A further supply of such motor vehicles
- Transportation of passengers
- Imparting training on such motor vehicles
- The transportation of goods
Clause (aa) Vessels and aircrafts
Except when used for
- A further supply of such vessels or aircraft
- Transportation of passengers
- Imparting training on navigating such vessels
- Imparting training on flying such aircraft
Clause (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)
Except for when Motor vehicles, vessels, or aircrafts received by a taxable person are used for
- Manufacture of such motor vehicles, vessels or aircrafts
- In the supply of general insurance services in respect of such motor vehicles, vessels or aircrafts insured by him
i) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing or renting or hiring of motor vehicles, vessels or aircraft referred in clause(a) or (aa), life insurance and health insurance
Except where an inward supply of goods and 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 and services or both or as an element of a taxable composite or mixed supply.
ii) Membership of club, health and fitness center.
iii) Travel benefits extended to employees on vacation such as leave or home travel concession.
iv) Rent a cab except when
- The government notifies the services which are obligatory for an employer to provide to an employee under any law
- Where an inward supply of goods and 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 and services or both or as an element of a taxable composite or mixed supply.
Clause (c) Works contract services when supplied for construction of an immovable property(other than plant & machinery)
Clause (d) Construction of an immovable property(other than plant & machinery) when used for the furtherance of business.
For Clause c and d, Construction includes re-construction, renovation, alteration, additions, or repairs to the extent of capitalization to the said immovable property.
Here “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 and services or both includes structural foundation but exclude
i) Land, building, or any other civil structure
ii) Telecommunication towers
iii) Pipelines laid outside factory premises
Clause (e) Goods or services on which tax has been paid under Section 10 (Composite supply).
Clause (f) Goods or services received by a non-resident taxable person, except for goods imported by him
Clause (g) Goods or services used for personal consumption
Clause'(h) Goods or services or both lost, stolen, destroyed, written off, or disposed of by way of gift or a free sample.
Clause (i) Any tax paid in accordance with sections 74,129,130
Frequently Asked Questions
The GST credit would be apportioned between exempted and taxable supplies using Rule 42. Input Credit for making exempted supplies would not be claimed.
We often get confused whether we should avail such Input Tax credit. The first and foremost principle whether it used for furtherance of business. The second step would be follow the conditions of Section 16 and Section 17. If satisfied avail the GST Input tax credit.
Akash Arora is a Chartered Accountant by profession and the founder of this website. His expertise areas include compliance with Goods and Service tax and Direct taxes in India. He has written more than 70+ blogs on GST and Direct tax.
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