INPUT TAX CREDIT (ITC) ELIGIBILITY GUIDE
Comprehensive Analysis of ITC on Various Expenses under GST
1. INPUT TAX CREDIT ON BANKING CHARGES
Overview
Banking charges are generally eligible for ITC if they are used in the course or furtherance of business.
Legal Provisions
- Section 16 of CGST Act, 2017: Allows ITC on goods or services used in the course or furtherance of business
- Section 17(5): Lists blocked credits - banking charges are NOT listed here
Eligibility Criteria
| Type of Banking Charge | ITC Availability | Conditions |
|---|---|---|
| Bank Account Maintenance Charges | ✓ ELIGIBLE | If business account and used for business purposes |
| Transaction Charges | ✓ ELIGIBLE | For business transactions |
| Cheque Book Charges | ✓ ELIGIBLE | For business account |
| RTGS/NEFT Charges | ✓ ELIGIBLE | For business payments |
| Overdraft Interest | ✗ NOT ELIGIBLE | Interest is exempt under GST |
Key Points
✓ ITC is available on banking service charges if:
- The services are used for business purposes
- The registered person is eligible to claim ITC
- Tax invoice is received from the bank
- Tax has been actually paid to the government
2. INPUT TAX CREDIT ON LOAN PROCESSING CHARGES
Overview
Loan processing charges are eligible for ITC if the loan is taken for business purposes.
Detailed Analysis
| Particulars | ITC Status | Reasoning |
|---|---|---|
| Loan Processing Charges for Business Loan | ✓ ELIGIBLE | Used in course or furtherance of business (Section 16) |
| Loan Documentation Charges | ✓ ELIGIBLE | Part of business financing activity |
| Loan Appraisal Fees | ✓ ELIGIBLE | Ancillary service for business loan |
| Loan Interest | ✗ NOT ELIGIBLE | Interest on loan is exempt from GST |
| Loan for Personal Purpose | ✗ NOT ELIGIBLE | Not used for business purpose |
Important Conditions
- Purpose Test: Loan must be for business purposes
- Documentary Evidence: Maintain proper records showing business use
- GST Invoice: Valid tax invoice must be obtained from the bank
- Exemption Note: Interest component is exempt, only processing charges attract GST
3. INPUT TAX CREDIT ON INSURANCE CHARGES FOR BANK FINANCE
Overview
ITC on insurance charges depends on the type of insurance and the asset being insured.
Types of Insurance - ITC Analysis
| Insurance Type | ITC Availability | Legal Reference |
|---|---|---|
| Life Insurance (Mandatory for Loan) | ✗ NOT ELIGIBLE | Section 17(5)(b)(i) - Blocked Credit |
| Health Insurance (Employees) | ✓ ELIGIBLE | Not blocked under Section 17(5) |
| Motor Vehicle Insurance (Commercial) | ✓ ELIGIBLE | If vehicle used for business |
| Motor Vehicle Insurance (Personal Car) | ✗ NOT ELIGIBLE | Section 17(5)(a) - Blocked Credit |
| Property/Asset Insurance | ✓ ELIGIBLE | If asset used for business |
| Stock/Inventory Insurance | ✓ ELIGIBLE | Business asset protection |
Special Cases
Credit Linked Insurance:
- When bank mandates insurance for loan approval
- Life insurance remains blocked even if mandatory
- Asset insurance (other than motor vehicle for personal use) is eligible
- Keyman insurance for business is eligible
4. INPUT TAX CREDIT ON PERSONAL EXPENSES
Overview
ITC on personal expenses is NOT AVAILABLE as per Section 17(5)(h) of CGST Act.
Legal Provision
Section 17(5)(h) of CGST Act, 2017:
"Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business."
Most importantly - goods or services for personal consumption are blocked credits.
Examples of Personal Expenses
| Expense Type | ITC Status | Reason |
|---|---|---|
| Personal Mobile Bill | ✗ NOT ELIGIBLE | Personal consumption |
| Personal Grocery | ✗ NOT ELIGIBLE | Personal consumption |
| Personal Travel | ✗ NOT ELIGIBLE | Not for business purpose |
| Personal Gifts to Family | ✗ NOT ELIGIBLE | Personal use |
| Household Expenses | ✗ NOT ELIGIBLE | Personal consumption |
Business vs Personal - Key Test
For ITC to be available:
- Expense must be for business purposes
- Must be in course or furtherance of business
- Personal element must be absent or insignificant
- Proper records must establish business use
5. INPUT TAX CREDIT ON PERSONAL CAR PURCHASED
Overview
ITC on personal car is generally BLOCKED under Section 17(5)(a) of CGST Act.
Legal Provision
Section 17(5)(a) of CGST Act, 2017:
ITC shall not be available in respect of motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for specified purposes.
Detailed Analysis
| Particulars | ITC Status | Explanation |
|---|---|---|
| Personal Car (Seating ≤13) | ✗ NOT ELIGIBLE | Blocked under Section 17(5)(a) |
| Fuel for Personal Car | ✗ NOT ELIGIBLE | Related to blocked motor vehicle |
| Maintenance of Personal Car | ✗ NOT ELIGIBLE | Service relating to blocked asset |
| Insurance of Personal Car | ✗ NOT ELIGIBLE | Blocked under Section 17(5)(b) |
| Accessories for Personal Car | ✗ NOT ELIGIBLE | Related to blocked motor vehicle |
Impact on Business
Complete Block on ITC:
- No ITC on purchase of personal car
- No ITC on fuel, repairs, maintenance
- No ITC on insurance and accessories
- Block applies even if occasionally used for business
6. INPUT TAX CREDIT ON COMMERCIAL CAR PURCHASED
Overview
ITC on commercial car is AVAILABLE if used for specified purposes under Section 17(5)(a).
Eligible Scenarios - Exceptions to Block
| Business Activity | ITC Status | Conditions |
|---|---|---|
| Making Taxable Supply of Motor Vehicle | ✓ ELIGIBLE | Car dealer selling vehicles |
| Transportation of Passengers | ✓ ELIGIBLE | Taxi/cab service, tour operators |
| Imparting Training on Driving | ✓ ELIGIBLE | Driving schools |
| General Business Use (Not Specified) | ✗ NOT ELIGIBLE | Does not fall in specified categories |
Additional Eligible Categories
| Vehicle Type | ITC Availability | Details |
|---|---|---|
| Goods Carrier/Truck | ✓ ELIGIBLE | Used for transportation of goods |
| Bus (Seating >13) | ✓ ELIGIBLE | Not covered under block |
| Three-Wheeler Goods Vehicle | ✓ ELIGIBLE | Goods transportation |
| Ambulance | ✓ ELIGIBLE | If used for healthcare services |
Key Requirements for ITC Claim
- Specified Use: Vehicle must be used for purposes mentioned in exception
- Commercial Registration: Vehicle should be commercially registered
- Business Records: Maintain proper documentation of commercial use
- All Related Costs: ITC available on fuel, maintenance, insurance, parts if vehicle ITC is eligible
7. INPUT TAX CREDIT ON RESTAURANT BILLS OF EMPLOYEES/STAFF
Overview
ITC on restaurant bills for employees is generally NOT AVAILABLE except in specific circumstances.
Legal Framework
Section 17(5)(b)(ii) of CGST Act, 2017:
ITC shall not be available on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services is used by a registered person for making an outward taxable supply of the same category.
Detailed Scenarios
| Scenario | ITC Status | Reasoning |
|---|---|---|
| Employee Lunch/Dinner (Regular) | ✗ NOT ELIGIBLE | Blocked under Section 17(5)(b)(ii) |
| Employee Team Outing Food | ✗ NOT ELIGIBLE | Blocked credit |
| Client Meeting at Restaurant | ✗ NOT ELIGIBLE | Blocked credit |
| Business Travel - Food | ✗ NOT ELIGIBLE | Blocked credit |
| Hotel Running Restaurant (Sells Food) | ✓ ELIGIBLE | Same category supply exception |
| Outdoor Caterer Buying Food | ✓ ELIGIBLE | Input for output supply |
Exception - Same Line of Business
ITC is available only when:
- The registered person is in the business of providing food/restaurant services
- The input (food) is used for making outward supply of same category
- Example: Restaurant buying ingredients, caterer buying food for events
- Employee welfare does NOT qualify for this exception
Alternative Treatment
Since ITC is not available:
- Treat as business expense (reduce profit, lower tax liability)
- Full cost including GST is allowable expense under Income Tax
- Consider as employee welfare expense
- Maintain proper documentation for audit purposes
SUMMARY TABLE - ITC ELIGIBILITY AT A GLANCE
| Sr. No. | Expense Type | ITC Status | Legal Reference | Key Condition |
|---|---|---|---|---|
| 1 | Banking Charges | ✓ ELIGIBLE | Section 16 | Business account/purpose |
| 2 | Loan Processing Charges | ✓ ELIGIBLE | Section 16 | Business loan only |
| 3 | Insurance for Bank Finance | ⚠ PARTIAL | Section 17(5)(b) | Depends on insurance type |
| 4 | Personal Expenses | ✗ NOT ELIGIBLE | Section 17(5)(h) | Personal consumption blocked |
| 5 | Personal Car | ✗ NOT ELIGIBLE | Section 17(5)(a) | Motor vehicle block |
| 6 | Commercial Car | ✓ ELIGIBLE | Exception to 17(5)(a) | Specified business use |
| 7 | Restaurant Bills (Employees) | ✗ NOT ELIGIBLE | Section 17(5)(b)(ii) | Food & beverage block |
ITC ELIGIBILITY DECISION FLOWCHART
GST Input Tax Credit Query
(Course or furtherance of business)
Section 17(5)(h)
Personal consumption blocked
Section 17(5)(a)
(Sale, Taxi, Driving School)
Section 17(5)(b)(ii)
(Restaurant/Caterer)
Section 17(5)(b)(i)
Life insurance blocked
Section 17(5) - other clauses
• Valid tax invoice received
• Tax paid to government
• Goods/services received
• Return filed (Section 16)
Claim input tax credit
Conditions not satisfied