Expenses excluded for Input Tax Credit in GST

Though input tax credit can be claimed by a person registered under GST for most inputs, some services are not eligible for input tax credit claim. After almost four months post GST businesses are still trying to understand the changes required in their current systems to accommodate with new compliance model.

We all are doing the analysis to understand its overall impact. On this note, we bring to you our impact analysis on those expenses which are not allowed for GST Input credit and what outcome one should draw from it.

In this article, we look at such services, which are not eligible for input tax credit under GST.

Here is the list of items excluded from input tax credit claim under GST:

Motor Vehicle and Conveyances

Input tax credit can be claimed for motor vehicles or conveyance only when they are used for

  • Making a further supply of such vehicles, Conveyances (For exampleMaruti ,Honda car manufacturers).
  • Transportation of passengers (For example Companies giving vehicles on lease to Ola, Uber, Travel agencies owning the vehicles).
  • Imparting training (Motor driving schools).
  • Transportation of goods (GTA like GATI, INTERIM, BLUE DART).

Therefore companies other than above, cannot claim GST credit of expenses incurred in the purchase of Motor Vehicle. Also, this brings us to consult with our tax advisors on treatment of input credit under following categories

    • Maintenance expenses for office vehicles
    • Conveyance expenses for employees
    • Logistic expenses incurred in transportation of goods.

Food, Beverages and Outdoor Catering

GST Input credit can be claimed for food, beverages only by such registered person who is engaged in the business of

  • Restaurant services
  • Food and catering services
  • Hotels

Therefore regular taxpayers i.e. companies other than above, cannot claim GST credit of expenses relating to food, beverages, and catering incurred during Staff welfare, festivals, Canteen service, Business meetings.

This tells us to consult with our tax advisors on the treatment of input credit for food platforms like Food panda, Zomato, and other online food chains.

However from 1st Nov the GST levy on AC & Non AC Restaurants coming down to 5%, the restaurants will not be able to take the benefits of ITC.

Membership of a club, health and fitness center

In most of the Multinational companies, large size Indian companies generally following expenses are offered to employees:

  • Beauty treatment
  • Health services
  • Cosmetics
  • Medicines.

These expenses are also out of the purview of claiming GST Input credit even if it is given as gifts up to 50,000 for the regular taxpayer.

Life and Health Insurance

The policy holders who have taken general insurance (includes fire, marine, car, theft, etc.) can enjoy GST Input credit paid on the policy premium.However, the premium paid for health and life insurance will not be allowed for GST input credit.

Travel Benefit for Employees

The travel benefits extended to employees on vocation such as leave or home travel concession cannot be claimed for GST input credit.

Conclusion:

We believe it is imperative for the companies to make the necessary operational and financial changes for accommodating the above cases of ineligibility of ITC. In our next edition of the blog, we will discuss some more such expenses in detail.

This leaves us all with a question, what do I need to discuss with my accountants and tax consultants on the requirement to re-structure my business process?

References:

Ineligible input credit under CGST Act.

 

 

Things you want to know about Bill of Supply in GST?

Who is required to issue Bill of Supply?

> A registered taxable person supplying

  • Zero Rated goods & services i.e. non taxable
  • Paying tax under the composition levy,

> A unregistered person who are not required to pay GST,

shall issue a Bill of Supply containing the prescribed particulars.

A bill of supply issued by the supplier shall contain the following information and details:

  1. Name, address and GSTIN of the supplier;
  2. A consecutive serial number containing only alphabets and/or numerals, unique for a financial year;
  3. Date of its issue;
  4. Name, address and GSTIN/ Unique ID Number, if registered, of the recipient;
  5. HSN Code of goods or Accounting Code for services;
  6. Description of goods or services;
  7. Value of goods or services taking into account discount or abatement, if any; and
  8. Signature of the supplier or his authorized representative

When Bill of Supply is not required

A registered taxable person may not be required to issue BOS, if the value of the goods or services supplied is less than Rs.200 only.

Consolidated Bill of Supply shall be prepared by the registered taxable person-

  1. At the end of each day,
  2. In respect of all supplies for value of less than rupees one hundred (Rs. 200),
  3. Consolidated BOS will only cover supplies where bill of supply has not been issued.

Difference between Tax Invoice and Bill of Supply in GST:

TAX INVOICE BILL OF SUPPLY
It is used for all types of Taxable Sales including exports It is used for all types of exempted sale or sales by composition dealer.

Taxes to be shown separately.

No taxes to be shown separately.

In case of Unregistered Buyer,

  • Name,
  • Address &
  • Place of Delivery

is compulsory required, if Invoice Value before taxes is > 50000

No such provision.
Input Tax Credit (ITC) can be claimed based on Tax Invoice Input Tax Credit (ITC) cannot be claimed based on BOS

Conclusion:

Therefore Bill of Supply shall also be issued by non-registered person. The only scenario where not required to be issued, is when the amount of sale is < 200 per transaction.

Hence we recommend that non registered dealers shall obtain registration too in GST & if they cannot obtain the same due to compliance cost burden then always use Bill of Supply for sale of items in the prescribed format.

Reference:

https://www.aces.gov.in/Documents/draft-invoice-rules.pdf (POINT NO. 3)

www.gst-insights.com

Written By:

Pallavi Gupta, CA Trainee

 

 

 

Taxable Event in GST is known as Time of Supply

Under GST, a uniform and single Taxable Event CALLED ‘supply’ would replace multiple taxable events which are in current Indirect Tax regime, stated as follows :

  • For manufacture, Taxable event is when manufacture is complete – Excise levied.
  • For Service provided, Taxable event is when services provided completely OR agreed to be provided (advance received) – Service Tax levied. Subject to Invoice
  • For sale of goods, Taxable event is when sale of goods is complete – VAT/ CST levied.

Simply under GST the liability to pay tax is called as Time of Supply.

Thus, constant monitoring and compliance required for keeping track of all these different taxable events at present regime would fade away in GST, but, simultaneously, the term ‘supply’ will hold the greatest significance and shall be important in determining the tax ability of all transactions, whether commercial or otherwise under GST regime.

No doubt, GST has made taxable event simpler by keeping it uniform but it is crucial here to note that the term “includes” is attached with the word supply. And there has been lot of judicial pronouncements to establish the meaning of includes in law. – Here we recommend business to take consultations from professionals because supply falling under charging section.

Sharing some judicial judgement for reference:

The cases of Doypack Systems (Pvt) Ltd. Vs. Union of India [1988 (36) ELT 201 (SC)], the Hon’ble Supreme Court has interpreted the meaning of the term ‘includes’, as “It is well settled that the word ‘includes’ is an inclusive definition and expands the meaning.”

Similarly, in the case of Tata Consultancy Services Vs. State of Andhra Pradesh [2004 (178) ELT 22 (S.C.)], the Hon’ble Supreme Court has interpreted the meaning of the word ‘includes’, to suggest that “….When the word ‘includes’ is used in an interpretation clause, it must be construed as understood (comprehending) not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include.

Keeping in mind, the importance this term supply would entail in GST, the term supply could have been defined in exhaustive manner to ensure the boundaries restricting any sort of wide interpretation of the taxable event. That would have further reduced the scope of litigation’s which is the major challenge with exiting indirect tax regime.

Ironically, the other way round we can conclude that anything defined in GST under Negative or exempted list is not “supply”.

Ease of Business with uniform taxable event

Based on above discussions, it is critical that the lawmakers should wake up to the realities of the situation and ensure to have concrete taxable base by defining the term ‘supply’ in clear and unambiguous manner, which is the pivotal term under the proposed GST regime, that would be the centric point to determine levy & collection of GST.
And to keep the purpose of GST alive by not getting in litigations, whereas to have ease & real growth of business & economy.

Conclusion

The existing regime of taxation identifying taxable event for each activity was challenging  due to non uniformity of same under manufacturing, trading, services, customs etc.  GST has made it uniform for all the events by bringing it under one net of taxable event called as “Time of Supply”.

Though this will be in line with Service Tax Point of Taxation Rules.

References for Time of Supply:

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