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.


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?


Ineligible input credit under CGST Act.



TRAN vs VAT Refund Claim : Which is better under GST?

What shall be the treatment of Input Credit of old stock in Tran 1 After GST? In order to claim input of old stock in GST, you have to submit the records of the tax credits in TRAN 1 / TRAN 2.

Scenarios for treatment of Input Credit of old stock in TRAN 1:

Treatment of Input Credit of old stock for Industry under GST

Treatment of Input Credit of old stock for Industry under GST

Here are possible scenarios for any industry:

Do you Have C Form?

  • Yes, We have C Forms
    • We have a complete set of C Forms.
      • Payable Tax = This will be net liability person has to pay after claiming input credit of VAT, CGST, SGST & IGST i.e. (Output tax liability) – (Transitional credit + credit under GST).
    • We don’t have complete set of C Forms
      • Option 1: Pay the Differential tax b/w VAT & CST, claim a refund after VAT Assessment.
      • Option 2: Wait for C forms completion and pay late fee+ interest.
      • Option 3: Claim in TRAN NIL against pending Form C, file refund application to claim C form credit.
  • No, We have C Forms
    • Pay the Differential tax b/w VAT & CST.

Therefore in case of pending C forms, amongst the above 3 option-the 3rd option makes a better choice:

Credit to claim from TRAN


We think that under GST the mechanism of claiming credit from old regime is very simple for Service tax and Excise duty but at the same time it has created hardships for people who has to claim credit of VAT regime belonging to C forms.

We have come up with this article to guide people to avoid the hardship arising from filing TRAN 1 in case there are missing C/ F Forms, by opting for the mechanism of filing Refund application and claim the credit from VAT department.


Rules for claiming Input Credit through TRAN

How to Fill TRAN 1- Take help from this video


Understanding Input Tax Credit in GST and why it may have drastic impact on companies

We all know that in businesses compliance s, the main objective is to obtain timely benefit of input tax credit or refund.

To understand the same in GST which is a brilliant move to put checks on fraudulent practices & drive businesses including small & medium business towards formal economy. Let’s take an example:

ABC Ltd. a manufacturer of cars purchased 30 tonnes of steel from DEF Ltd.

DEF Ltd. supplied steel & issued tax invoice on 14th May with GST of 100000

With this example let us understand the process of flow of input tax credit in GST:

  1. On 14th May ABC Ltd. received goods & services i.e. 1st condition of ITC is fiulfilled.
  2. On 10th June DEF Ltd. file GSTRN 1 Return for outward supply.
  3. From 11th June till 15th June ABC Ltd. will have visibility of their purchases through Form GSTR-2A & they can make modifications, if any & file GSTR 2.
  4. Now ITC is credited on provisional basis of 100000 to ABC Ltd.
  5. The ITC becomes final once tax payment is made by DEF Ltd. to government & ABC Ltd. has filed GSTR 3.
  6. The final acceptance of ITC will be communicated in Form GST MIS-1.

The major challenge in GST is to do with linkage of tax payment by a supplier, to the availability of credit by buyer. This is where services of Chartered Accountants & Financial tools shall be taken & solutions of reconciliation by linking transactions trail can be seen.

The reasoning of such linking as given by government & we have seen too: People are today participating in fraudulent  practices to take input tax credit when it is not due through non- existence invoices, fake invoices etc. Therefore it is only fair to put the risk back on the citizen. Let them do the self policing & avail benefit of ITC correctly.

To prevent fraudulent claims, either of non- existence invoices, or for amounts which are not as per the original invoice, the concept of invoice matching has been proposed in law. This will eliminate the fraud by one-o-one mapping of invoices, which was the real gap in VAT regime. It is clearly a brilliant move!

However GST has multiplied the compliance s & increased the waiting time for calling a “Transaction” to be complete. For eg:

In VAT scenario a transaction gets complete when goods/ service are delivered, invoice received & tax payment done.

In GST scenario both supplier & buyer has to coordinate so closely & clearly in order to call a transaction as complete because the conditions to call a “Transaction” as complete has to be fulfilled in coordination.

Therefore no longer a business can assume that  the transaction is “over” only by completing one limb of transaction, like payment of  ITC to govt. by supplier. One has to complete all the 4 major limb of a transaction to avail the benefit of ITC, which is the primary objective of such major compliance s in GST.

Though introduction of GST will lead to emergence of several market behaviors like

  • Some will refuse to pay the supplier until 30th of the following month, leading to abnormal increase in working capital needs for supplier.
  • Others will refuse the tax portion- leading to multi step transactions and increase in both working capital needs as well as cost of doing business.
  • Buyers will be asked for Bank Guarantees to cover the possible risks of suppliers.

Compliance Rating in GST will play a major role in knowing your supplier before you buy. The objective being, that since your input tax credit is dependent on the supplier therefore it is thoughtful if the buyer gets to see the rating of supplier as “good or poor”. Accordingly suppliers will be mindful of keeping there rating good & make tax payment on time as eventually not complying will lead to loosing business opportunity.


Therefore I conclude by saying that GST has tried to fill all loopholes of existing system & help in building healthy economy.

Recommended References:


ITC_Chapter V of CGST Act.



Treatment in GST: Closing Stock Input Credit Held Prior GST


Yes you can Avail Closing Stock Input Credit only on meeting conditions talked in this Article.

Businesses which are liable to be registered under GST are

  1. Every person if supplying goods or services more than 20 lakh (Rs.10 lakh for north east states including Sikkim)
  2. If you are purchasing or selling goods outside the state irrespective of the limit mentioned in point 1
  3. If you are receiving or providing services outside the state irrespective of the limit mentioned in point 1
  4. If you are required to pay tax under reverse charg
  5. If you are non-resident taxable person irrespective of the limit mentioned in point 1
  6. Input Service Distributor
  7. An aggregator who supplies services under his brand name or his trade name irrespective of the limit mentioned in point 1
  8. Every electronic Commerce operator like Flipkart, Amazon, etc., irrespective of the limit mentioned in point 1
  9. A person who supplies goods and services through electronic commerce. In other words, if you want to sell on Flipkart, Amazon, then you will need to register yourself first irrespective of the limit mentioned in point 1.
  10. Any person who is required to deduct TDS under GST (not under Income Tax Act, 1961).

Therefore today you may not be registered as your threshold limit does not exceed the prescribed limit of Rs 1.5 crores in case of manufacturing but registered under VAT. Under above mentioned scenario, the common question every business will have is “Can I avail Closing Stock Input credit held on the last day prior to GST implementation”? Yes, you will be allowed to avail Closing Stock Input credit (CENVAT, input VAT, Service Tax, Etc.), Closing stock in form of inputs (raw- materials), semi- finished goods, and finished goods. However, there are conditions that you need to meet to be eligible to avail Closing Stock Input credit held prior GST. Eligibility conditions to avail Closing Stock Input Credit if

  • The closing stock held either in form of raw materials, semi-finished goods, or finished goods, and must be intended to be used for taxable supplies.
  • You are eligible for input tax credit under GST. In GST, you are eligible for Input Tax credit if you are a regular tax payer only. A taxable person opting for composition levy under GST is not allowed to claim Input Tax credit.
  • You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods).
  • The benefit of such credit is passed on, by way of reduced prices, to the recipient. In the current tax regime, duty/tax is added as product cost where the Input Tax Credit is not allowed. On transition to GST, ITC will be allowed, and this should naturally result in the reduction of base cost, and subsequently reduced final price to customers.
  • The date of invoices or any other prescribed duty / tax paying documents is within 12 months from the date of transitioning to GST.
  • The supplier of services is not eligible for any abatement under the act.

Let us understand this with an example. Burberry Bakeries is a registered excise dealer in Bakery products & raw material. On 1st March, 2017, Burberry Bakeries purchased some cake baking ingredients, and the details of transaction are given below:

Date Stock Item Qty Rate / qty Total Value Vat @ 12.5% Excise Duty 12.5%
01-03-2017 Cocoa Powder 100 kg  150/ kg 15000 2109 1875

As on 31st March, 2017, the closing stock of Raw material held by Burberry Bakeries is 50 kg

  • As per the current tax structure, Burberry Bakeries can avail the Input VAT of Rs 2109 as credit, and can set this amount against the output VAT. However, excise duty is not allowed as Input Tax credit. Therefore, it is added to the product cost. Now, on transitioning to GST, Burberry Bakeries is allowed to avail Closing Stock Input credit of excise duty.

Under GST let’s recalculate the excise duty on closing stock, which can be availed as Input credit.

Closing Stock as on 31-3-2017 100 kg
Duty Per Unit (( Total Excise Duty 1875 / Quantity 100 Kg )* 50 Kg) 937.5 / kg

But the eligibility to avail Closing Stock Input Credit is only on fulfilling following conditions:

  1. The closing stock of 50 kg held must be used or intended to be used for taxable supplies.
  2. The benefit of such credit must be passed on, by way of reduced prices, to the recipient.
  3. They are eligible for Input Tax credit under GST.
  1. They should have invoices or any other prescribed duty/tax paying documents in respect of closing stock of inputs (including semi-finished goods and finished goods).
  2. The date of invoices or any other prescribed duty/tax paying documents must be within 12 months from the date of transitioning to GST.


The benefit of Closing Stock Input Credit held prior to GST shall be allowed in GST regime only on fulfillment of above defined conditions.