Input Tax Credit mechanism allows registered person under GST to set-off their GST tax liability. Since GST is a consumption-based tax, the input tax credit mechanism ensures that the ultimate GST liability is passed on to the consumer. Though GST is very famous for the free flow of credit, there are few cases where input tax credit is not available to the taxpayer under GST regime. Some of them are mentioned below:
Goods or Services or both used for personal consumption.
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample.
Goods or services procured from composition dealers.
No ITC will be allowed of tax component paid on purchase of capital goods if depreciation has been claimed on the same.
ITC on hotel bills if the State in which the buyer is registered is different than the state in which the hotel is located.
ITC on Motor vehicles and other conveyances except when they are used--
· Further Supply of such vehicle or conveyance; or
· Transportation of passengers; or
· Imparting training on driving, flying, navigating such vehicle or conveyances; or
· Transportation of goods
Food and Beverages, Outdoor Catering, Beauty Treatment, Health services, cosmetic and Plastic surgery except where an inward supply of goods or services or both of the particular category is used by a registered person for making an outward taxable supply of the same category.
Rent-a-cab service except in cases-
· Where govt. notifies the services are obligatory.
· For making an outward taxable supply of same category of goods or services.
ITC is not allowed in case of service providers who have opted for lower rate of tax. For instance - Restaurant Service, Passenger & Goods Transport Service, GTA, etc.