Section 17 of the GST Act deals with the apportionment of credit and blocked credits. This section is important for businesses that are registered under GST and want to claim input tax credit.
Input tax credit (ITC) is the credit that businesses can claim for the GST they have paid on their purchases. However, there are certain conditions that need to be met in order to claim ITC. Section 17 explains these conditions and also outlines the circumstances where ITC cannot be claimed, known as blocked credits.
Apportionment of Credit:
Apportionment of credit refers to the distribution of ITC amongst the different business activities of a taxpayer. If a taxpayer is involved in both taxable and exempt supplies, then the ITC cannot be fully claimed for taxable supplies only. The ITC has to be apportioned based on the proportion of taxable supplies to total supplies.
Blocked Credits:
Blocked credits are those GST credits that cannot be claimed by businesses. Section 17 lists out the following cases where ITC cannot be claimed:
- Motor vehicles: ITC cannot be claimed on motor vehicles and other conveyances, except in certain cases.
- Food, beverages, and catering: ITC cannot be claimed on food, beverages, and catering services.
- Membership of clubs: ITC cannot be claimed on the membership of clubs, health, and fitness centers.
- Travel benefits: ITC cannot be claimed on travel benefits provided to employees on vacation such as leave or home travel concession.
- Works contract: ITC cannot be claimed on works contracts for the construction of immovable property, except in certain cases.
- Goods and services used for personal purposes: ITC cannot be claimed on goods and services used for personal purposes.
In summary, Section 17 of the GST Act is important to understand for businesses claiming ITC. It outlines the conditions for apportioning ITC and the circumstances where ITC cannot be claimed, known as blocked credits.
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