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Input Tax Credit (ITC) on Employee Expenses

May 21st, 2019 in GST

History

Every registered taxpayer under GST who continues any business at wherever in India/State can avail Input tax credit (ITC). Moreover, the ITC amount allowable to him will be credited to his e-credit ledger. The ITC is permissible to the degree utilized in the course of business to the amount of supply. The credit is accessible subject to the restrictions listed in Sub Section 5 of 17 of the GST Act.

An entity incurs different employee expense in the course of day-to-day activities. Some of the common examples of these expenses are telephone bills, internet charges, business travel expenses, and taxi services for pick and drop of employees, outfits and defensive caps for employees. The inquiry which emerges is whether every such expense that is caused by the employee, could be utilized. We look at this and different viewpoints on ITC eligibility on employee-related expenses in this article.

 

Checklist of Blocked ITC in Terms of Employee Expenses W.E.F. 1 Feb 2019

 

1.  For motor vehicle having seating limit of not more than thirteen (including the driver)

Here is the list of transactions on which you can claim ITC on motor vehicle:

  • When such motor vehicle is utilized for the supply of vehicle/transport of passengers or motor vehicle driving learning services.

A).  ITC on renting, leasing or employing of such motor vehicles for the transport of people is accessible as follows:

  • When the inward supply of such vehicle is used by the taxpayer to make outward taxable supply of goods or services.
  • When such motor vehicle is utilized for the supply of vehicle/transport of passengers or motor vehicle driving learning services.
  • Where it is mandatory for business by any law in force to provide such services to its employees.

B).  ITC on insurance, repair or maintenance in regard to such motor vehicles

  • When such motor vehicle is utilized for the supply of vehicle/ transport of passenger or motor vehicle driving learning services.

Whereas, for the motor vehicle with the seating limit of more than 13 people there is no such restriction to avail ITC on such vehicle.

2.  The ITC is restricted on plastic surgery, outdoor catering services, beauty treatment, cosmetics, health services, food and beverages: ITC in regard of such products or/and services or both will be accessible where:

  • When the inward supply of such vehicle is used by the taxpayer to make outward taxable supply of goods or services.
  • Where it is mandatory for business by any law in force to provide such services to its employees.

3.  Club membership, fitness and health centres, travel benefits stretched out to employees on vacation, for example, leave. ITC will be accessible where:

  • Where it is mandatory for business by any law in force to provide such services to its employees.

4.  Goods distributed as gifts.

5.  ITC is not available on the goods and services that are used for personal purpose.

ITC Eligibility on Regularly Accrued Expenses

Here are some of the regularly accrued expenses on which ITC is eligible:

  1. ITC can be availed on safety shoes, protective headgear, protective caps or uniforms.
  2. Input Tax Credit is eligible on telephone bill expenses used in the course of business.
  3. ITC is also eligible on air travel expenses by director or employees for business purposes.
  4. Input Tax Credit is permissible on lodging or boarding expenses to carry out official meetings.
  5. The business can avail ITC on expenses incurred on outdoor catering services provided to staff arising due to the statutory obligation under Section 46 of the Factories Act, 1948.
  6. The ITC is eligible for employee accident insurance as it does not fall under the category of health or life insurance.