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Is ITC Available on Diwali Gifts?

Prakash Matre
Prakash Matre at April 21, 2023

Diwali the most widely celebrated festival in India is approaching within next five days and now us is the time to distribute Diwali gifts but this time the major tax reform i.e. the implementation of the GST has put the businesses in face to face questions like “Whether the input tax credit would be available for the purchase of Diwali Gifts?”. Diwali is one occasion where business tries to fulfill all its obligations towards vendors, customers, government officials, consultants etc. so whether the input tax credit on Diwali Gifts is available or not becomes a very question as a lot of investment is made on purchasing of these gifts and a lot of ITC is involved in it. 

In this article, we will discuss ITC on diwali gifts, GST on diwali gifts, ITC on diwali gifts to employees, is GST input available on diwali gifts, GST input on diwali gifts to employees, can we claim ITC on diwali gifts, ITC diwali gift hampers, ITC on gift to employees.

Here comes the answer which we will be analyzing according to GST Provisions:

As per section 16 a taxpayer is entitled to take credit of input tax charged on any supply of goods or services to him which are used in the course or furtherance of his business. Course of business means usual business practice such as manufacturing, trading etc. It implies those transactions which are directly related to business without which business cannot be run, like purchase of raw material, capital goods etc. But for us important to understand is Furtherance of business which means the act of advancement or promotion of business for its sustained growth and profitability. One thing is very clear that the Diwali gifts which are given to persons related to a business will definitely fall under the definition of furtherance of business because these gifts are generally given to sustain good business relations for the advancement of business activity. The above is summarized as under:

Goods include:

  • Every kind of movable property,
  • Actionable claims,
  • Growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

Goods do not include:

  • Money and
  • Securities

In order to call a commodity as goods, it is necessary that they are used for the purpose of supply. To call a particular transaction as supply, it should have consideration involved or the same should be mentioned under Schedule I of the Act. There is neither any consideration nor is there any reference of gifts under Schedule I except of those given to employees. In such circumstances, these Diwali gifts move out of the ambit of “Goods” from the prospective of business unit purchasing such gifts. It should be noted that the same Diwali gift shall be treated as supply of goods for the vendor who have sold such gifts and tax should be charged by the supplier. Therefore it can be construed that Diwali gifts fulfill the conditions of Section 16 for claiming of input tax credit.

Another important question is about the sweets and beverages purchased for distribution to employees/workers on Diwali?

Answer to the above is that Section 17(5) (b) (i) specifically restricts the input tax credit with respect to food and beverages which means it is a blocked credit. Hence any sweets or beverages bought for workers/employees shall not be eligible for claiming input tax credit.

Last but not the least is the gifts given to the employees on Diwali:

Who all are the employees? Any person who is working under specific terms and conditions and against a fixed salary and further who is subject to all the rules of employment, then he shall be treated as employee under GST. Under GST, any amount payable as salary against the services of the employee shall not attract any GST because it is not treated as supply. As per GST law, any gifts from employer to employee exceeding the value of Rs.50, 000 shall be liable to GST in India which means that if the employer gifts anything over Rs.50, 000, then that shall be liable to tax under GST. Hence, if the value of gift is more than Rs.50, 000 then you are liable to pay GST in India. Many diamond dealer, gold dealer, companies, etc gifts car, gold, cash on Diwali festival. The value of their gifts is always more than Rs. 50,000 and hence all these gift items shall attract GST. Therefore, the employers who are gifting high value goods, like car, home, gold exceeding the value of Rs. 50,000 shall be liable to GST in India. But the worst part is that if any product is gifted to employee, then no ITC shall be allowed.

Let’s conclude the above provisions:

A taxpayer shall be eligible to claim input tax credit on the Diwali gifts purchased by it and distributed to persons related to business but there shall be no ITC with respect to the sweets and other eatables purchased for distribution to workers/employees or any gifts distributed to the employees by the employer.

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