Explain ‘Apportionment of ITC’ in detail.
Explain ‘Apportionment of ITC’ in detail.
Or
What are the restrictions in claiming ITC? Discuss.
Ans.
Apportionment of Itc or Restrictions in Claiming ITC
[Sec. 17 CGST Act, 2017]
Supplies are used partly for business and partly for other purposes
[Sec. 17 (1)]
Amount of credit shall be restricted to so much of input tax as is attributable to the purposes of his business. The Central/State Government may prescribe the manner in which the credit may be attributed.
For example, where the capital goods, such as computers, are used partly for business and partly for personal purposes, input tax credit would be available proportionately.
(2) Goods/Services are used partly for taxable supplies and partly for exempt supplies.
[Sec. 17(2)]
The amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies.
Thus, where goods/services are used partly for exempt supplies and partly for taxable supplies and/or zero-rated supplies’, input tax credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
As per section 17(3) exempt supply means and includes:
(1) Such supply of goods and/or services which attract nil rate;
(ii) Such supply of goods and/or services may be wholly exempt from tax;
(iii) Non-taxable supply,
(iv) Supplies on which the recipient is liable to pay on reverse charge basis;
(v) Transactions in securities;
(vi) Sale of land and building.
It may be noted that ‘taxable supply” means supply of goods and/or services which is chargeable to tax under the concerned GST Act.
For example, ABC in Delhi takes a term loan from PNB for its plant located in UP; and processing fee is charged by the bank in Delhi for such loan. Since the loan will be utilized in UP for making taxable supplies; whereas bank charges related non-taxable supplies in Delhi. Therefore, ABC cannot claim input tax credit of sucl amount in Delhi and it has to transfer to UP through ISD (input service distributor) the mechanism for utilization at UP.
