Know what are blocked credit under GST?

Blocked credit under GST- Input tax is levied on any provision of products or services, or both, that are used or planned to be used in the conduct or furtherance of business. Block credit in GST is used to pay the excise tax. ITC is the backbone of GST and there are a number of conditions that have to be met in order to collect ITC on any purchase. However, a block input tax credit is restricted in other circumstances, preventing the recipient from claiming ITC. Blocking of ITC on specified inward supplies is dealt with under section 17(5) of the GST Act.

Do you know?

ITC is not available for motor vehicles used for the transport of persons having a seating capacity of less than or equal to 13 persons (including the driver).

What is GST Block Credit Section?

If you are a registered taxpayer under the GST Act, whether you are a manufacturer, supplier, agency or e-commerce operator, you can make use of the block input tax credit mechanism. You can get ITC on your purchases if you qualify.

Input credit means that you can deduct the tax that you have paid on inputs earlier and pay the difference when it comes time to pay output tax.

When you receive a product or service from a licensed dealer, you need to pay taxes. You collect tax when you sell. You have to balance the tax block credit against the GST liabilities (tax on sales minus tax on purchases) by adjusting the tax paid with the tax liability (tax on sales). Application of input tax is the name of this process.

  • For example, if you are a manufacturer, the output tax (final product) is ₹450.
  • Input tax (purchase) is ₹300.
  • Can claim ₹300 in his credit and will have to pay ₹150 in taxes.

Who is eligible for Block Input Tax Credit?

A person who is registered for GST can claim Input Tax Credit only if he satisfies all the requirements.

  • The tax invoice should be in the hands of the dealer.
  • The goods/services in question have been delivered.
  • Tax return has been submitted.
  • The tax levied has been paid by the provider to the Government.
  • If the products are delivered in instalments, ITC can be claimed only after the delivery of the last lot.
  • If depreciation is claimed on the taxable portion of the capital product, no ITC will be given.

Meaning of Block Credit GST

Under , block credit refers to delivery of goods and services for which credit is not available due to legal restrictions.

There are certain items in GST for which credit is not allowed:-

  • The amount of credit is limited to the maximum amount of tax payable relating to the business of the registered person. The products or services are used partly for any business and partly for other reasons.
  • If the registered person uses goods or services for making taxable supplies including zero-rated stores under this Act or the Integrated Goods and Services Tax Act.
  • A banking business or a financial institution, with a GST block credit non-banking financial institution that provides services such as receiving deposits, granting loans or advances, has the option of complying with the conditions or not.
  • The value of supply exempted under sub-section (2) shall be as specified. This will include block input tax credit on supplies, which the receiver will have to pay on reverse charge basis, tax on transactions in securities and sale of land.

What is GST Block Credit?

Goods or services on which tax credit (ITC) is not accessible to offset the output tax burden are block credits. Even if it has been availed of GST block credit section for business purposes, there are certain investments on which ITC is not eligible.

The following purchases/expenditure are not eligible for ITC even if they are made for business purposes.

Vehicles with a seating capacity of less than thirteen people are purchased. Ships and aircraft are being bought. Any cost associated with motor vehicles/vessels or aeroplanes, including general insurance, repairs and maintenance, service etc.

Note: Earlier it was allowed, but as of 2018, it has been added to the block credit list. Gifts, freebies or items that have been lost, damaged or written off. For personal consumption, goods or services (or both) are consumed.

GST is paid on goods, services, or a combination of both received under a combination scheme [Section 10 of the CGST Act 2017].

The items on which credit is not allowed in GST are given below. In the following situations, block input tax credit is not available.

1. Except in certain cases, motor vehicles with a passenger capacity of less than or equal to 13 persons (including the driver), freight transport agencies, ships and airplanes. Consequently, ITC is allowed in the following circumstances:

  • These automobiles and vehicles are then delivered or sold.
  • Passengers and products are carried.

1. Number 1 services include general insurance, servicing, repair and maintenance of motor vehicles, watercraft and airplanes.

2. Food and beverage, outdoor catering, beauty treatments, health services, and cosmetic and plastic surgery are just a few of the options available.

3. Club, health and fitness center memberships

4. Hiring a cab, buying health insurance and buying life insurance are all options.

5. Employees on leave receive travel incentives such as vacation or home travel concessions.

Block credit in GST is incompatible with the core assets of GST. However, denial of loan can be justified on the following grounds:

1) Block Input Tax Credit is a way to reduce the risk of fraud,

2)Sources such as block credit GST are meant to cover an element of use in the real life sense of the word, for example, entertainment in a restaurant.

3) Block credit under GST avoids the administrative cost of controlling the corresponding actual use of these goods/services, which can easily be used for dual reasons (business/private) due to their nature.

When is ITC availed on block credit under GST?

GST is a complex law, as you know, and everything has exemptions. GST paid on products on ‘Block Credit in GST List’ can be claimed in the cases listed below!

  • If the supplier is involved in the supply of some of the goods mentioned above, he is eligible for ITC; Otherwise, blocks the GST credit section.
  • In case of things listed in point 1 above, ITC is available when an employer is required under any existing law to offer any of the things listed in point 1 to his employees.

Conclusion:

Input Tax Credit (ITC) can be claimed only if you satisfy all the conditions under section 16(2). Yet, it is unfortunate that many taxpayers are also taking credit of goods covered under block credit under GST. Such as cars and lifts, and also tell that they will handle themselves at the time of investigation as audit has been removed from the budget, input tax credit has been blocked, thereby hampering the exercise. As per a recent judgment of the Gujarat High Court in respect of M/s Vago Pvt Ltd, ITC for air conditioners, cooling systems and ventilation systems is not allowed under section 17(5)(c) of the CGST Act.

Important FAQs

Q: What is block credit under GST?

Answer:

Five special instances where GST block credit can be denied are mentioned in the rules. Block credit in GST can be availed without an invoice or other legal document, or the buyer can avail credit on the invoice for which the seller has not paid GST.

Question: Who has the authority to block Input Tax Credit under GST?

Answer:

The Chief Commissioner has the power to block input tax credit above Rs 5 crore. ITC from ₹1 crore to ₹5 crore can be decided by an Additional or Joint Commissioner. ITC of less than ₹1 crore can be blocked by an officer of the rank of Deputy or Assistant Commissioner.

Question: How do I unblock restricted credit balance on the GST portal?

Answer:

You will receive an email and an SMS with the following message:

  • “Please check your Block Input Tax Credit account unblocked by a jurisdictional authority to see the amount of GST block credit.
  • “To access the Electronic Credit Ledger, go to Services > Ledgers > Electronic Credit Ledger.
  • As you can see, ITC has been unblocked.

Q: What is block credit under GST?

Answer:

Five special instances where such credit could be denied were mentioned in the rules. The GST block credit section can be obtained without an invoice or other legal document, or the consumer can obtain credit on invoices for which the seller has not paid GST.

Question: What is block credit under GST example?

Answer:

Gifts, free samples or items that have been lost, destroyed or written off. For personal consumption, goods or services (or both) are consumed in the block input tax credit. GST is paid on goods, services, or a combination of both received under combination mode [Section 10 of the CGST Act 2017]. Any tax withheld under Sections 74, 129, and 130 of the Internal Revenue Code [often examples of fraud].

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