Apportionment of Credit & Blocked Credit under GST

Apportionment of Credit & Blocked Credit under GST

GST was made applicable from July 1, 2017 to all the persons making the taxable supply of goods and services wherein the aggregate turnover in financial year exceeds the threshold limit of 40 lakhs rupees (10 lakhs in other states).

Sec 17 of CGST Act, 2017 tells us about the apportionment of credit & blocked credit under GST. A registered person shall be eligible for apportionment of credits of goods & services in the following manner:

  1. Input shall be restricted to the use by business partly for business and partly for others.
  2. Input shall be restricted for the taxable & zero rated supplies partly for taxable supplies including zero rated supply and partly for exempt supplies
    (Exempt supplies include supplies on which recipient is liable to pay tax on reverse charge)
  1. Banks, financial Institution or NBFC have option to comply as per 2 above or avail 50% credit every month of Inputs, capital goods & input services. Provided that the option once exercised cannot be withdrawn during the financial year. Also, restriction of 50% of credit is not applicable for the tax paid on supplies made by same person (i.e. having same PAN).

Further, below is the list of blocked credits i.e. wherein input tax credits (ITC) shall not available under GST:
1. Motor vehicle and other conveyance except when such motor vehicle are used for:

  • Further supply of vehicles or
  • Transportation of persons (no input on vehicles with capacity less than or equal to 13, including driver)
  • Imparting training on driving of such vehicles
  • Transportation of goods (majorly to goods transport agencies )

2. Supply of goods and services such as:
a. No ITC for the below mentioned goods and services:

  • Food and beverages
  • Outdoor catering
  • Beauty treatment
  • Health services
  • Cosmetic and plastic surgery
  • Membership of club, health and fitness center
    ITC will be available for all the above services (except membership of club, health and fitness center) if the category of inward and outward supply is same or mixed or composite supply.

b. Rent a cab, life insurance and health insurance, except where it is obligatory services  notified by government for an employer to its employees or such inward supply of goods and services is used to provide outward supply of same category, mixed or composite supply.

c. Travel benefits extended to its employees on vacation:

  • For work contract service, except where input service is used for further supply of work contract service (other than plant and machinery)
  • Goods and services used for constricting immovable property even if it is used for business (other than plant and machinery)
  • Goods and services on which composition scheme has been availed
  • Goods and services received by non-resident taxable person, except on any goods imported by him
  • Goods and services used for personal purpose
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift / free sample

3. No ITC in fraud cases: No benefit is given by law relating to any fraudulent transaction done by the tax payer, thereby implying that ITC cannot be availed which has resulted into non or short tax payment, excessive refund or ITC unutilized.

Moreover, Rule 42 of CGST Rules provides the way for apportionment of ITC on inputs and input services and reversal of ineligible credit. Compliance of this section is essential to ensure no blocked ITC is recorded in the books of accounts thereby avoiding an uncertain GST liability and interest over it.

If you are looking to keep yourself updated about the recent compliances or requires assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

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