It could be practically difficult for taxpayers to prove this. Especially if the service, like banking service, is used partly for business and partly for personal purpose
Over the last year or so, companies have claimed input tax credit worth billions of rupees while handling Goods and Service Tax (GST). But can individuals do the same? Many individuals are registered under GST system. People pay GST on a wide range of financial services like banks, life and health insurance, and different charges levied by various financial institutions. DNA Money asked tax experts about how individuals too can claim some relief. Here is how to go about the process. Read on.
Banking on it
Banks charge GST at the rate of 18% on charges paid by customers. Do note that interest paid to a bank does not attract GST and hence no question of Input Tax Credit or ITC. Whether or not one can claim the Input Tax Credit on GST on charges paid for banking services must be analysed or looked into from the point of view of the purpose of availing the particular banking facility and not from the point of view of the person who is actually using the facility.
"A registered taxpayer under GST can avail ITC of the GST on the charges paid to banks and financial institutions on a condition that the particular facility against which such ITC is being claimed must be used for carrying out business. Businessmen who do most of their transactions through the bank will definitely incur hefty charges on many facilities accumulated every month. Also, there are annual renewal charges on working capital funding facility. So, any shrewd businessman would not want to let go of this ITC available, no matter how small this amount may be," said a ClearTax spokesperson.
Vishal Raheja, deputy general manager, Taxmann said that a supplier can avail of the ITC of the GST paid only in respect of those financial services which have been availed for his business.
"ITC can’t be claimed on the services used for his personal purposes. It is advisable for a taxable supplier to keep his personal affairs separate from his business transactions," he said.
If the services are used partly for business purpose and partly for personal consumption, then credit of the portion of services that is attributable to business can only be availed. But this can practically be very difficult to implement in this case and is debatable, said experts.
Banks usually issue tax invoice or any alternative document (like an authorised statement) within 45 days from the date of the transaction. Do remember that taxpayers intending to claim credit must note that there is time limit of up to one year from the invoice date for claiming ITC on GST paid in their respective GST returns.
No freebies
According to Gautam Khattar, partner, indirect tax, PwC India, a registered person effecting supply of goods and/or services is entitled to avail input tax credit when the input supply is used/ intended to be used on the course or furtherance of business. While the intent of the law is to provide seamless and widest possible input credits, there are certain restrictions in the law.
"For instance, where the credit is in relation to GST paid on the purchase of motor vehicles, life insurance, health insurance, etc., no input credits are available. Interestingly, there are certain exceptions to these restrictions also. Like, credit in respect of motor vehicles is allowed where the motor vehicles are used for making further supply (such as transportation of passengers, etc.)," he said.
Accordingly, a registered GST individual is typically eligible to avail credit of GST paid on financial services (like banks, additional interest charged for default in payment).
"Here, a specific exception to credit entitlement is in relation to life and health insurance, unless these services are availed to render supply of the same category (that is, life and health insurance, itself)," argues Khattar.
Suresh Surana, founder, RSM Astute Consulting Group feels that so long as a registered individual can establish a nexus between the financial services and it's correlation with one's business, credit cannot be denied. "For other charges as well, such as, bank charges and additional interest, banks and financial institutions are unable to issue GST compliant documents. This is preventing many taxpayers from claiming input tax credit on such services," he said.
Divyesh Lapsiwala, tax partner, EY India said that a registered person availing credit needs to ensure important aspects like supply is used in the course or furtherance of business and there is possession of proper invoice. Also, it needs to be ensured that the registered taxpayer receives the goods or service, and supplier of service pays tax to the government. Besides, the recipient should make the payment within 180 days from the date of invoice, and GST identification number is provided to the supplier of service.
WHERE CAN YOU CLAIM TAX CREDIT
- Credit in relation to GST paid on the purchase of motor vehicles, life insurance, health insurance, etc., are not available.
- But there are certain exceptions. Credit in respect of motor vehicles is allowed where the motor vehicles are used for making further supply such as transportation of passengers
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