by Apportionment of Input Tax Credit (ITC):
Under the GST law, a registered person can claim input tax credit (ITC) on the tax paid on inward supplies of goods or services, which are used or intended to be used for the business purposes. However, in some cases, it may not be possible to determine the exact amount of input tax credit (ITC) that is attributable to the business purposes. In such cases, the GST law provides for the apportionment of input tax credit (ITC) among the different purposes, based on a reasonable method.
The apportionment of input tax credit (ITC) is applicable in the following cases:
Inputs or input services used for both taxable supplies and exempt supplies: If a registered person uses inputs or input services for both taxable supplies and exempt supplies, then the input tax credit (ITC) can be apportioned based on the proportion of the value of taxable supplies to the total value of supplies made during the tax period.
For example, if a manufacturer uses raw materials worth INR 10 lakhs for both taxable and exempt supplies during a tax period, and the value of taxable supplies during the same period is INR 8 lakhs, then the input tax credit (ITC) can be apportioned as follows:
Input tax credit (ITC) = Total input tax credit (ITC) * Value of taxable supplies / Total value of supplies
= INR 1.8 lakhs * 8/10
= INR 1.44 lakhs
Inputs or input services used for both taxable supplies and non-business purposes: If a registered person uses inputs or input services for both taxable supplies and non-business purposes, then the input tax credit (ITC) can be apportioned based on the proportion of the value of taxable supplies to the total value of supplies made during the tax period.
For example, if a manufacturer uses electricity for both production purposes and for running the staff canteen, then the input tax credit (ITC) can be apportioned based on the proportion of the value of taxable supplies to the total value of supplies made during the tax period.
Inputs or input services used for both taxable supplies and non-taxable supplies: If a registered person uses inputs or input services for both taxable supplies and non-taxable supplies, then the input tax credit (ITC) can be apportioned based on the proportion of the value of taxable supplies to the total value of supplies made during the tax period.
For example, if a manufacturer uses raw materials for both taxable supplies and for export purposes, then the input tax credit (ITC) can be apportioned based on the proportion of the value of taxable supplies to the total value of supplies made during the tax period.
Blocked Credit:
Under the GST law, input tax credit (ITC) is not available on certain goods and services, which are known as blocked credits. These goods and services are not eligible for input tax credit (ITC) under any circumstances, irrespective of whether they are used for business purposes or not. The blocked credits include the following:
- Motor vehicles: Input tax credit (ITC) is not available on motor vehicles and other conveyances, except in certain cases, such as when they are used for providing transportation of passengers, imparting training, or for transportation of goods.
- Food and beverages: Input tax credit (ITC) is not available on food and beverages, outdoor catering, beauty treatment, health services, and cosmetic and plastic surgery, except when they are used for making outward taxable supplies of the same category.
- Membership of clubs, health and fitness centers: Input tax credit (ITC) is not available on membership of clubs, health and fitness centers, and similar facilities.
- Rent-a-cab, life insurance and health insurance: Input tax credit (ITC) is not available on rent-a-cab, life insurance, and health insurance, except when they are used for making outward taxable supplies of the same category.
- Works contract services for construction of immovable property: Input tax credit (ITC) is not available on works contract services for construction of immovable property, except when they are used for further supply of works contract services.
- Goods or services received for personal consumption: Input tax credit (ITC) is not available on goods or services received for personal consumption, such as gifts and free samples.
- Input services used for making exempt supplies: Input tax credit (ITC) is not available on input services used for making exempt supplies, except for certain specified services, such as services used for making outward taxable supplies.
- Input tax credit carried forward from earlier law: Input tax credit (ITC) carried forward from earlier law is not available on goods and services that are blocked credits under the GST law.
- Other goods and services as specified by the government: The government may specify other goods and services on which input tax credit (ITC) is not available, by issuing notifications.
