Section 17(5) of CGST Act, also referred to as blocked credits, is a very important provision for every regular taxpayer under GST. It defines a list of purchases on which GST is paid but businesses cannot claim these as the Input Tax Credit (ITC).
Section 17(5) of the CGST Act deals with blocked credit under GST. Blocked credit refers to the input tax credit which a taxpayer is not allowed to claim. The section lists various scenarios where input tax credit cannot be claimed.
Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017 provides for the list of items for which Input Tax Credit (ITC) is blocked or ineligible. The items on this list cannot be used to claim ITC under any circumstances. The list of ineligible or blocked ITC under GST Section 17(5) includes:
1. Motor vehicles and other conveyances (except when they are used for making taxable supplies, such as in the case of transportation of goods or passengers, or imparting training on driving, flying, navigating, etc.)
2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance, and health insurance (except when they are used in the course or furtherance of business)
3. Rent-a-cab, life insurance, and health insurance (except when they are used for providing the same category of services)
4. Works contract services when supplied for construction of an immovable property (other than plant and machinery), except where it is an input service for further supply of works contract services
5. Goods or services received by a taxable person for construction of an immovable property on his account (other than plant and machinery), except where it is an input service for further supply of works contract services.
Input tax credit
‘Input Tax Credit’ or ‘ITC’ means the Goods and Services Tax (GST) paid by a taxable person on any purchase of goods and/or services that are used or will be used for business. ITC value can be reduced from the GST payable on the sales by the taxable person only after fulfilling some conditions.
According to section-16 makes amendments to buyers, who fail to pay their supplier the invoice value, including the GST amount, under 180 days from the date of payment an amount equal to the ITC claimed along with interest under section 50.
Section 50(1)-every person who is liable to pay tax as per provisions of the act or rule has failed to pay tax within the prescribed period, for the period of such unpaid tax.
According to section 17 of the Income Tax Act, perquisites are included in salary and are taxable as such.
Rule of CGST
CGST stands for Central Goods and Services Tax. It subsumes all the taxes that were earlier applicable as central indirect taxes. They are levied by the central government for the intrastate movement of goods and services.
As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second-hand goods i.e. used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods.
As per Rule 3. Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM GST CMP-02, duly signed or verified through an electronic verification code, on the common portal, either directly or through a Facilitation Centre notified by the Commissioner.
As per rule 20. Provided that no application for the cancellation of registration shall be considered in case of a taxable person, who has registered voluntarily, before the expiry of a period of one year from the effective date of registration.
Important information about the CGST
CGST enables self-assessment by taxpayers on taxes payable by them. CGST conducts audits so taxpayers can ensure compliance with the Act’s provisions. The CGST can recover tax arrears through provisions for detaining and restricting the sale of goods and property by defaulting taxpayers.
The full form of CGST is Central Goods and Services Tax. It is a tax levied by the Central Government on the supplies of both goods and services within the same state i.e. intrastate. The tax liability under CGST will be first set off against CGST, and the balance can be set off against IGST input tax credit only.
Conclusion
GST plays an important role in the Indian economy, designed to create a unified tax structure, reduce the cascading of taxes, and ensure that the tax burden is fairly shared between the Central and State Governments.
GST has both positive as well as negative impacts on the economy. It facilitates economic growth by being transparent and creates loss over a few sectors by the increased prices of the commodity but the ease of doing business has been helped by a unified taxation system in the country.
This blog is written by Kratika Pal.
