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Know What are Blocked Credits Under GST

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Input tax is levied on any provision of products or services, or both, that are used or planned to be utilised in the conduct or furtherance of the business. Blocked credit in GST is used to pay the production tax. ITC is the backbone of GST, and several conditions must be met to collect ITC on any purchase. However, a blocked input tax credit is banned in other circumstances, preventing the recipient from claiming ITC. The blocking of ITC on specific inward supplies is dealt with under Section 17(5) of the GST Act.

Did you know?

ITC is not available for motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver).

Also Read: Tax Collected At Source (TCS) Under Goods and Services Tax

What Is GST Blocked Credit Section?

If you are a registered taxpayer underneath the GST Act, whether you’re a producer, supplier, agency or e commerce operator, you can use the blocked input tax credit mechanism. You can get an ITC on your purchases if you qualify.

Input credit implies that you may deduct the tax you’ve previously paid on input and pay the difference when it comes time to pay output tax.

When you acquire a product or service from a licenced dealer, you must pay taxes. You collect tax when you sell. You must balance the tax blocked credit in GST liabilities (Tax on sales minus tax on buy) by adjusting the tax payment with the amount of tax liability (Tax on sales). The usage of input tax is the name of this procedure.

  • For example, if you’re a manufacturer, the output tax (Final product) is ₹450
  • The input tax (Purchase) is ₹300
  • You can claim a ₹300 in your credit and have to pay ₹150 in taxes.

Who Is Eligible for Blocked Input Tax Credit?

A person who is registered for GST can only claim the input tax credit if he meets all of the requirements.

  • The dealer must have a tax invoice on hand.
  • The goods/services in question have been delivered.
  • The tax returns have been submitted.
  • The tax levied has been paid by the provider to the government.
  • If products are delivered in instalments, ITC can only be claimed once the last lot is delivered.
  • If depreciation on the tax portion of a capital product has been claimed, no ITC will be awarded.

The Meaning of Blocked Credit GST

Under the GST, blocked credit refers to delivering goods and services for which credit is not available due to legal restrictions.

In GST, there are some items in which credit is not allowed.

  1. The amount of credit is limited to much of the tax payable relevant to the registered person’s business. The products or services are utilised for any business and partly for other reasons.
  2. If the registered person utilises the goods or services in part to make taxable supplies, including zero-rated stores, under this act or the Consolidated Goods and Services Tax Act.
  3. A banking business or a financial institution, along with a GST blocked credit non-banking financial institution that provides services such as receiving deposits, granting loans or advances, has the choice of complying with the conditions or not.
  4. The value of an exempt supply under subsection (2) shall be as specified. It shall comprise supplies upon blocked input tax credit which the receiver must pay tax on a reverse charge basis, securities transactions and land sales.

Also Read: GST Input Tax Credit on Supply of Goods or Services

What Is GST Blocked Credit?

The term ‘block’ refers to a roadblock or a halt in a constant flow. Similarly, goods or services on which the tax credit (ITC) is not accessible to offset the output tax burden are blocked credits. Even if it is acquired GST blocked credit section for business purposes, there are a few investments on which ITC is not eligible.

The following purchases/expenses are not eligible for ITC, even though they were made for business purposes.

Vehicles with a seating capacity of fewer than thirteen people are purchased. Vessels and planes are being purchased. Any cost associated with motor vehicles/vessels or aeroplanes includes general insurance, repair and maintenance, service, etc. 

Note: This was formerly permitted, but as of 2018, it has been added to the blocked credit list. Gifts, freebies or commodities that have been lost, damaged or written off. For personal consumption, goods or services (or both) are consumed.

GST is paid on goods, services, or a combination of the two acquired under the compositions scheme [Section 10 of the CGST Act 2017].

Items on which credit is not allowed in GST are below. In the following situations, the blocked input tax credit is not accessible. –

  1. Except in some situations, motor vehicles have a passenger capacity of fewer than or equal to 13 people (including the driver), goods transport agencies, watercraft and aeroplanes. As a result, ITC is permitted in the following circumstances:
  • These automobiles and conveyances are then delivered or sold.
  • Passengers and products are transported.
  • Conveyance is a term used to describe the process of teaching people how to drive, fly and navigate vehicles or conveyances.
  1. Sl. no.1 services include general insurance, servicing, repair and maintenance of motor vehicles, watercraft and aeroplanes.
  2. Foods and drinks, outdoor catering, beauty treatments, health services and cosmetic and plastic surgery are just a few of the options available.
  3. Club, health and fitness centre membership
  4. Renting a cab, purchasing health insurance and buying life insurance are all options.
  5. Employees on vacation receive travel incentives such as leave or home travel concessions.

Blocked credit in GST is incompatible with GST’s core properties. However, credit refusal can be justified on the following grounds:

1) Blocked input tax credit is a way to reduce the risk of fraud, 

2) Sources like blocked credit GST are meant to cover an element of utilisation in the real-life meaning of the term, e.g., entertainment in a restaurant.

 3) Block credit under GST avoids the administrative cost of controlling this same actual use of these goods/services, which may be conveniently used for dual reasons (business/private) due to nature.

When Is ITC Used on a Block Credit Under GST?

GST is complicated legislation, as you may know, and there are exemptions to everything. GST paid on products on the ‘blocked credit in the GST list can be claimed in the cases listed below!

  1. If the provider is involved in the subsequent supply of some of the commodities mentioned above, he is eligible for ITC; otherwise, GST blocks the credit section.
  2. In the case of the things listed in the point above, ITC is available when an employer is required to offer any of the items listed in point 1 to its workers under any current legislation.

Conclusion

In my opinion, the Input Tax Credit (ITC) can only be claimed if you meet all of Section 16 (2) conditions. Still, it’s unfortunate that several taxpayers are also taking the credit for goods that fall under blocked credit under GST. Such as cars and lifts, and also state that they will handle themselves during the time of scrutiny because the audit has been removed from the budget, blocked input tax credit, hampering the practice. According to a recent Gujarat High Court ruling of M/S Wago Private Limited, ITC for air conditioners, cooling systems and ventilation systems is not permitted under Section 17(5)(c) of the CGST Act.
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