Apportionment of Credit and Blocked Credits Sec.17 of CGST Act

Apportionment of Credit and Blocked Credits Sec.17 of CGST Act

Section to be discussed with relevant Rules under Chapter VI Input Tax Credit of CGST Act, 2017

17Apportionment of credit and blocked credits38,42 & 43

Section 17(1) the registered person used goods or services or both “partly for the purpose of business and partly for other purposes”, the amount of input tax credit available shall be restricted to so much of the amount as is attributable to the purpose of his business.

Section 17(2) read with Rule 42 & 43 Where the purchased goods or supply used by the registered person partly for taxable supply including zero rated and party for exempt supply, than the amount of credit shall be restricted to the amount attributable to the said taxable supplies including zero-rated supplies.

Section 17(3) – Inclusions in the Value of Exempt supply:

  1. Outward Supplies on which recipient is liable to pay tax under reverse charge,
  2. Transaction in securities (value shall be 1% of sale value),
  3. Sale of land (value shall be the same as adopted for the purpose of paying stamp duty)
  4. Sale of building subject to para 5(b) of schedule II (value shall be the same as adopted for the purpose of paying stamp duty)

Definition of Exempt Supply:

“Exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;

Section 17(4) – Apportionment of Input Tax Credit in case of Banking Company (including NBFC).

OPTION 1: Comply with the provisions of Section 17(2) read with Rule 42 & 43.

OPTION 2: Avail an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month.

The option once exercised shall not be withdrawn during the remaining part of the financial year. (1st Proviso)

It may be noted that the restriction of fifty per cent (50%) shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number. (2nd Proviso)

Section 17(5) – Blocked Credit

Input tax credit shall not be available in respect of the following:

a) Motor Vehicles for transportation of persons having seating capacity up to 13 persons (including drivers), Except Making the following taxable supplies:

  1. Further supply of such motor vehicles,
  2. Transportation of passengers, or
  3. Imparting Training on driving such motor vehicles.

aa) Vessels and aircraft except when they are used for making the following taxable supplies, namely:—

  1. Further supply of such vessels or aircraft; or
  2. Transportation of passengers; or
  3. Imparting training on navigating such vessels; or
  4. Imparting training on flying such aircraft;

                                   &

For transportation of Goods.

ab) Services of general insurance, servicing, repair & maintenance so far as they relate to clause (a) & (aa)

Provided the ITC shall be available for the following:

Where the motor vehicle, vessel or aircraft are used for the purposes specified in above clauses.

  • Manufacture of such vessel, vehicle or aircraft, or
  • Supply of general insurance in respect of such vehicle, vessel or aircraft insured by him.

b) i) Supply of  goods and services being:

Allowed ONLY if goods / services of a particular category are used towards making taxable outward supplies of the same category, or as an element of composite & mixed supply.

*except when used for the purposes specified in clause (a) & (aa) above.

ii) Membership of a club, health & fitness center and

iii) Travel benefits extended to employees on vacation such as leave or home travel concession.

Allowed ONLY where the services are notified as obligatory for an employer to provide to an employee.

c) Works contract services, except where it is an input service for further supply of works contract service.

d) Goods or services received by a taxable person for construction of an (Immovable property on his own account even when used in course or furtherance of business.)

e) Taxes on supply of goods or services paid u/s 10

f) Goods or services or both received by a non-resident taxable person except on goods imported by him, shall not be allowed

g) Goods or services or both used for personal consumption

h) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free supplies and

i) Any tax paid in accordance with the provisions of sections 74, 129 and 130

Rule- 42 Determination of Input Tax Credit in respect of Inputs or Input Services and Reversal thereof:

 Total CreditT
Less:Non BusinessT1
Less:Exclusively for ExemptT2
Less:Blocked Credit u/s. 17(5)T3
 Credited to Electronic-Credit ledgerC1
Less:Exclusively for taxableT4
 CommonC2
Less:Proportional to exempt (C2*E/F)D1
Less:Non business (5% of C2 if C2 contains Non business)D2
 Credit to be takenC3
Key points for Rule 42:
1.     Credit calculated on provisional basis shall be computed finally before due date of filing returns for the month of September following the end of the FY to which credit relates;
2.     In case amount calculated exceeds the provisional calculation the differential amount shall be added to the output tax liability
3.     Interest from the month of April of next FY till the date of payment to be paid
4.     In case amount finally calculated is short of the provisional calculation, the differential amount shall be taken as credit in the month of September
5.     It is to be noted that the reversal to be done at the end of the financial year is only applicable for Rule 42.

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