written by | May 17, 2022

Know What are Blocked Credits Under GST

×

Table of Content


Input tax is levied on any provision of products or services, or both, that are used or planned to be utilised in the conduct or furtherance of the business. Blocked credit in GST is used to pay the production tax. ITC is the backbone of GST, and several conditions must be met to collect ITC on any purchase. However, a blocked input tax credit is banned in other circumstances, preventing the recipient from claiming ITC. The blocking of ITC on specific inward supplies is dealt with under Section 17(5) of the GST Act.

Did you know?

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

Also Read: Tax Collected At Source (TCS) Under Goods and Services Tax

What Is GST Blocked Credit Section?

If you are a registered taxpayer underneath the GST Act, whether you're a producer, supplier, agency or e commerce operator, you can use the blocked input tax credit mechanism. You can get an ITC on your purchases if you qualify.

Input credit implies that you may deduct the tax you've previously paid on input and pay the difference when it comes time to pay output tax.

When you acquire a product or service from a licenced dealer, you must pay taxes. You collect tax when you sell. You must balance the tax blocked credit in GST liabilities (Tax on sales minus tax on buy) by adjusting the tax payment with the amount of tax liability (Tax on sales). The usage of input tax is the name of this procedure.

  • For example, if you're a manufacturer, the output tax (Final product) is ₹450
  • The input tax (Purchase) is ₹300
  • You can claim a ₹300 in your credit and have to pay ₹150 in taxes.

Who Is Eligible for Blocked Input Tax Credit?

A person who is registered for GST can only claim the input tax credit if he meets all of the requirements.

  • The dealer must have a tax invoice on hand.
  • The goods/services in question have been delivered.
  • The tax returns have been submitted.
  • The tax levied has been paid by the provider to the government.
  • If products are delivered in instalments, ITC can only be claimed once the last lot is delivered.
  • If depreciation on the tax portion of a capital product has been claimed, no ITC will be awarded.

The Meaning of Blocked Credit GST

Under the GST, blocked credit refers to delivering goods and services for which credit is not available due to legal restrictions.

In GST, there are some items in which credit is not allowed.

  1. The amount of credit is limited to much of the tax payable relevant to the registered person's business. The products or services are utilised for any business and partly for other reasons.
  2. If the registered person utilises the goods or services in part to make taxable supplies, including zero-rated stores, under this act or the Consolidated Goods and Services Tax Act.
  3. A banking business or a financial institution, along with a GST blocked credit non-banking financial institution that provides services such as receiving deposits, granting loans or advances, has the choice of complying with the conditions or not.
  4. The value of an exempt supply under subsection (2) shall be as specified. It shall comprise supplies upon blocked input tax credit which the receiver must pay tax on a reverse charge basis, securities transactions and land sales.

Also Read: GST Input Tax Credit on Supply of Goods or Services

What Is GST Blocked Credit?

The term 'block' refers to a roadblock or a halt in a constant flow. Similarly, goods or services on which the tax credit (ITC) is not accessible to offset the output tax burden are blocked credits. Even if it is acquired GST blocked credit section for business purposes, there are a few investments on which ITC is not eligible.

The following purchases/expenses are not eligible for ITC, even though they were made for business purposes.

Vehicles with a seating capacity of fewer than thirteen people are purchased. Vessels and planes are being purchased. Any cost associated with motor vehicles/vessels or aeroplanes includes general insurance, repair and maintenance, service, etc. 

Note: This was formerly permitted, but as of 2018, it has been added to the blocked credit list. Gifts, freebies or commodities 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 the two acquired under the compositions scheme [Section 10 of the CGST Act 2017].

Items on which credit is not allowed in GST are below. In the following situations, the blocked input tax credit is not accessible. –

  1. Except in some situations, motor vehicles have a passenger capacity of fewer than or equal to 13 people (including the driver), goods transport agencies, watercraft and aeroplanes. As a result, ITC is permitted in the following circumstances:
  • These automobiles and conveyances are then delivered or sold.
  • Passengers and products are transported.
  • Conveyance is a term used to describe the process of teaching people how to drive, fly and navigate vehicles or conveyances.
  1. Sl. no.1 services include general insurance, servicing, repair and maintenance of motor vehicles, watercraft and aeroplanes.
  2. Foods and drinks, outdoor catering, beauty treatments, health services and cosmetic and plastic surgery are just a few of the options available.
  3. Club, health and fitness centre membership
  4. Renting a cab, purchasing health insurance and buying life insurance are all options.
  5. Employees on vacation receive travel incentives such as leave or home travel concessions.

Blocked credit in GST is incompatible with GST's core properties. However, credit refusal can be justified on the following grounds:

1) Blocked input tax credit is a way to reduce the risk of fraud, 

2) Sources like blocked credit GST are meant to cover an element of utilisation in the real-life meaning of the term, e.g., entertainment in a restaurant.

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

When Is ITC Used on a Block Credit Under GST?

GST is complicated legislation, as you may know, and there are exemptions to everything. GST paid on products on the 'blocked credit in the GST list can be claimed in the cases listed below!

  1. If the provider is involved in the subsequent supply of some of the commodities mentioned above, he is eligible for ITC; otherwise, GST blocks the credit section.
  2. In the case of the things listed in the point above, ITC is available when an employer is required to offer any of the items listed in point 1 to its workers under any current legislation.

Conclusion

In my opinion, the Input Tax Credit (ITC) can only be claimed if you meet all of Section 16 (2) conditions. Still, it's unfortunate that several taxpayers are also taking the credit for goods that fall under blocked credit under GST. Such as cars and lifts, and also state that they will handle themselves during the time of scrutiny because the audit has been removed from the budget, blocked input tax credit, hampering the practice. According to a recent Gujarat High Court ruling of M/S Wago Private Limited, ITC for air conditioners, cooling systems and ventilation systems is not permitted under Section 17(5)(c) of the CGST Act.
Do you have issues with payment management and GST? Install the Khatabook App, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!

FAQs

Q: What is blocked credit under GST?

Ans:

Five particular instances where GST blocked credit may be denied are outlined in the rules. Blocked credit in GST can be obtained without an invoice or other legal document, or purchasers can receive credit on invoices for which the seller has not paid the GST.

Q: Who has the authority to block input tax credit under GST?

Ans:

The main commissioner has the authority to block input tax credits worth more than Rs 5 crore. ITC of ₹1 crore to ₹5 crores can be decided by an extra or joint commissioner. ITC less than ₹1 crore can be blocked by the deputy or assistant commissioner rank officer.

Q: How can I unblock a credit balance that has been banned on the GST portal?

Ans:

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

  • "Please check your blocked input tax credit account to see the amount of GST blocked credit that a jurisdictional officer has unblocked.
  • "To access the Electronic Credit Ledger, go to Services > Ledgers > Electronic Credit Ledger. 
  • The ITC has been unblocked, as you can see.

Q: What is blocked credit under GST?

Ans:

Five particular instances where such credit may be denied were outlined in the rules. GST blocked credit section can be obtained without an invoice or other legal document, or consumers can receive credit on invoices for which the seller has not paid the GST.

Q: What is block credit under the GST example?

Ans:

Gifts, free samples or commodities that have been lost, destroyed or written off. For personal consumption, goods or services (or both) are consumed in blocked input tax credit. GST is paid on goods, services, or a combination of the two acquired under the composition system [Section 10 of the CGST Act 2017]. Any tax is paid under sections 74, 129 and 130 of the Internal Revenue Code [often fraud instances].

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
×
Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.