Goods & services on which ITC can't be claimed
Gaurav Yadav

Updated on January 29th, 2024

Input Tax Credit is the bedrock of the GST structure. Input Tax Credit makes the GST a justiciable tax structure in India and thus helps eliminate the earlier ‘tax on tax’ effect as was in the pre-GST era.

Though Input Tax Credit is an integral part of the GST, specific scenarios exist where ITC cannot be claimed. In case if you claim ITC in these cases, it will be treated as ineligible ITC claim and you will have to reverse it.

In this dedicated article, we will be looking at some of the scenarios where you will not be allowed to claim Input Tax Credit.

Some cases in GST where Input Tax Credit Under GST remains unavailable

Input Tax Credit under GST cannot be claimed on certain goods and services. This section will describe all the possible scenarios where claiming of Input tax Credit remains unavailable.


However, there are some exceptions to these cases, and we will be mentioning them wherever required.

Supply of Food, Beverages, Club Memberships

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input tax credit on food

Input Tax Credit under GST will not be allowed for the below-listed goods & services:

  • Foods & Beverages
  • Outdoor catering service
  • Beauty treatment services
  • Healthcare services
  • Cosmetic surgeries

However, there is an exception:

A taxpayer can avail of Input Tax Credit under GST if both the inward & outward supply belongs to the same category.

It simply means that if the taxpayer consumes the inward supplies to make the outward taxable supplies of the same category of goods or services.

Selling of membership subscriptions in fitness centres, clubs, etc.

ITC claim on membership

Input Tax under GST will not be available on the sale of the memberships of the gyms, clubs or fitness centres.

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Motor vehicles to transport people & conveyances

input tax credit on vehicle

Input Tax Credit under GST will not be allowed if:

  • The given vehicle is used to transport people and has a seating capacity of less than or equal to 13 people (1 driver included).
  • The vehicle is a vessel or an aircraft.

Following are some of the exceptions in this case:

Input Tax Credit will be allowed to claim if:

  • This vehicle is involved in the supply of other vehicles like vessels, aircraft, etc.
  • Training to drive, navigate or fly vehicles, conveyances, vessels or aircraft.
  • When these vehicles are used for the transportation of goods. Vehicles when used to transport goods from one place to another. However, this does not concern the Goods and Transport Agencies. (GTAs)
  • When the purchased vehicle is used for the transport of passengers.            
  • For example: ‘Perennial Tours & Travels’ purchases a travel bus for its inter-city transport business. Then the ‘Perennial Tours & Travels’ will be allowed to avail Input Tax Credit on this bus as this vehicle is being used solely for the business purpose or for the furtherance of the business.

Insurance of vehicles, servicing, repairing & maintenance

input tax credit on insurance

Availing of Input Tax Credit under GST will not be allowed on availing the services of general insurances of the vehicles.

ITC will also not be allowed for servicing, repairing & maintenance of motor vehicles (for example GST on cars), vessels, and aircraft.

However, there are certain exceptions to this:

Input Tax Credit will be available to the taxpayer if in the following cases
  • If a taxable entity manufacturing these vehicles, vessels or aircraft buy such general insurance.
  • When these general insurance services are supplied to the person concerning the vehicles insured by this entity.

Travelling other than business travel

input tax credit on travel

A taxable person cannot claim any Input Tax Credit for the GST paid on his personal travelling.

A taxable person also cannot claim any ITC for the GST paid on the travel benefits extended to the group of employees of a company.

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Work contract services

ITC on work contract

Input Tax Credit cannot be claimed on the work contract services provided for the construction of immovable properties.

In addition to this, Input Tax Credit will also not be available to the taxpayers for constructing an immovable property on his account.

Even if the goods & services are used for business purposes, ITC will NOT be allowed.

This rule holds for only the construction of immovable property. However, this rule does NOT fit for plants or machinery used for the business.

ITC will be available in the following cases:

  • On the inputs used in the manufacturing plant or the machinery used in the manufacturing processes.

Example:

  • Jethalal Textiles build a storage house for their final products. As this is an immovable property, the Input Tax Credit on the GST paid on building this depot, and all the inputs used in the construction will NOT be allowed.
  •  On the contrary, if the Jethalal Textile buys some goods to set up a ‘weaving plant machinery'. Then this will be counted as the goods used for the furtherance of business via extending the machinery.

Hence, Input Tax Credit will be availed on the GST paid on the input goods for this machinery.

Fraudulent ITC claims

Needless to say, availing of Input Tax Credit will NOT be available if the tax paid has resulted into:

Recently, mega ITC frauds have come to light which sums up as high as Rs. 35,000 Crore.

It is essential that the businesses stay away from ITC frauds and scrutinize their ITC claims before availing of the final ITC.

For this purpose, ITC reconciliation has become more essential than ever to stay compliant with the GST laws and stay away from the radar of the GST department & departmental audit.

Personal Consumption

ITC for personal work

The thumb rule for claiming Input Tax Credit under GST is that it is available only on the GST paid on the inputs of goods or services used to further the business or business-related activities.

In no circumstances will the taxable person be allowed to avail of the Input Tax Credit on the input goods or services used for personal consumption.

However, if a person uses common goods for business and personal use, then the person can take the common credit for the goods used for the business furtherance part.

Composition Taxpayers

ITC under gst

Input Tax Credit will NOT be available for the taxpayers opting for the Composition scheme.

To understand more about the GST Composition Scheme, visit our YouTube Channel GSTHero Videos.

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ITC for non-resident citizens

input tax credit under gst

ITC will not be available for the inputs of goods or services or both by a taxable non-resident Indian citizen.


A non-resident taxable person will not be able to claim any refunds. However, this non-resident taxable person will be allowed only to claim ITC on those goods he imports.

In a nutshell

Input Tax Credit is the most lucrative feature of the GST structure, making it a justiciable tax system over its predecessors.


However, there are certain cases discussed in this article on which the ITC claim is NOT available.


The businesses must have a robust ITC reconciliation system to claim only the eligible ITC and stay protected against ITC frauds.


GSTHero’s ITC reconciliation solution is an entirely automated solution that gives you a comprehensive ITC reconciliation report generated based on your GSTR-2A & GSTR-2B.


This report is scrutinized at a macro level, allowing you to claim about 100% of Input Tax Credit under GST. It also manages & tracks your defaulting suppliers by sending them frequent reminders about the error.

For all your GST needs, GSTHero has got you covered with outstanding & automated solutions.


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reconciliation

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Gaurav Yadav

About the author

Gaurav is an Engineer by training with a deep interest in Economics & Finance. He has been associated with the Fin-Tech industry for quite some time now. He writes for GSTHero for topics including GST Compliance, GST Structure, etc & aims to break down complicated technical jargon into simple terms for the taxpayers.

His expertise includes GST Laws, Corporate Finance & Macro-Economics.

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