No, Input Tax Credit (ITC) cannot be claimed on inputs, input services, or capital goods used exclusively to make non-GST supplies. Non-GST supplies, such as petroleum products and alcohol for human consumption, fall outside the GST framework, rendering any tax paid on related purchases ineligible for ITC claims.
Again, goods exempted under GST already enjoy 0% GST. ITC cannot be claimed for inputs used in such exempted goods as it will lead to negative taxation. So, ITC on inputs for exempted goods will also have to be removed.
ITC is not available for goods that are lost, stolen, destroyed, written off, or given as gifts or free samples. Businesses must account for such scenarios in their records, acknowledging the ineligibility of ITC on these items.
Supplies which don't come under the scope of the GST are termed as Non-GST supplies. However, these supplies can attract taxes other than the GST as per the jurisdiction of the state or the country. Some examples of such supplies include petrol, alcohol, etc.
Zero-rated supplies are supplies of property and services that are taxable at the rate of 0%. This means there is no GST/HST charged on these supplies, but GST/HST registrants may be eligible to claim ITCs for the GST/HST paid or payable on property and services acquired to provide these supplies.
This means that the supplier does not have to charge any GST on the supply. They can also claim a refund of the input tax credit (ITC) paid on the inputs used to make the supply. Zero rated supply is different from exempt supply, which is also not taxable, but does not allow the supplier to claim any ITC.
Yes, you can reclaim VAT on zero-rated supplies. This is because these supplies are taxable at a rate of 0%, meaning that the customer does not have to pay any VAT, but the supplier can reclaim the input VAT paid on associated purchases.
GST Treatment: 'No GST' transactions are exempt from GST, while 'Zero-rated GST' transactions have GST applied at 0%. GST Returns: Zero-rated transactions must be included in your GST returns, while exempt transactions do not appear.
The GST/HST break includes certain qualifying goods, such as:
Nil-rated supply is a type of GST supply where the GST rate is also 0%, but the supplier cannot claim the input tax credit. Non-GST supply or non-taxable supply is a type of GST supply that does not attract any GST, and exempt supply is a type of GST supply that is exempt from GST.
ITC can be availed only on goods and services for business purposes. If they are used for non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed . Apart from these, there are certain other situations where ITC will be reversed.
ITC Eligibility Criteria: Conditions to Claim
You must have a valid tax invoice, debit note, or document issued by a registered supplier as proof of tax payment. The goods or services must have been received. If goods are received in instalments, ITC can be claimed only after the final instalment is delivered.
The ITC is claimed in the tax year the system is placed in service, not the year construction begins. This means the credit applies once the system is installed, connected, and operational.
ITC is not for the supply of following goods or services or both:
Goods lost, stolen, destroyed, written off, gifted, or free samples; Any tax paid due to short payment on account of fraud, suppression, incorrect declaration, seizure, detention. Any tax paid due to short payment on account of fraud, suppression, incorrect declaration, seizure, detention.
- 2025-TIOL-77-SC-VAT.
The Bench of Justices Manoj Misra and N.K. Singh reaffirmed a core proposition of fiscal fairness: a purchaser who has paid tax in good faith to a registered seller cannot be denied Input Tax Credit (ITC) merely because the seller fails to deposit that tax with the Government.
supply of goods or services or both which is not leviable to tax under the CGST or IGST Act. Examples could be transactions in money, supply of liquor or narcotic substances, specified 5 petroleum products: crude petroleum, petrol, diesel, aviation turbine fuel, and natural gas.
GST-Free Items:
Fresh fruits, fresh milk, curd, bread, etc. Exports and supplies made to SEZ units or SEZ developers, of both goods and services. Grains, salt, jaggery, etc. Alcohol used for human consumption, natural gas, petrol and its products, etc.
Sales that do not include GST in their price are known as GST-free sales. In contrast, sales that have GST included in their price are known as 'taxable sales'. Examples of items that are GST-free include: basic food, such as fruits, vegetables, meat, fish and eggs.
As per sec 16(1) of IGST Act any supplies made by a registered dealer as an export (Both goods or services) or supply to an SEZ qualifies for Zero Rated Supplies in GST. The supply to a developer of an SEZ is also covered under Zero-Rated Supplies in GST as no tax is levied on these supplies as well.
Non-GST supplies are those supplies that are not covered under GST. Input tax credit is not available on the purchase of goods or services that are used to make non-GST supplies.
ITC Eligibility for Different Supply Categories
Nil Rated Supplies: No ITC can be claimed. Exempt Supplies: No ITC can be claimed. Zero Rated Supplies: ITC can be claimed and refunded. Non-GST Supplies: Not applicable for ITC.
You can claim a credit for any goods and services tax (GST) included in the price you pay for things you use in your business. This is called an input tax credit, or a GST credit.
1 Exempt supplies are the sale or lease of residential properties, the provision of financial services, the supply of digital payment tokens (with effect from 1 Jan 2020) and the sale of investment precious metals. guide “GST: Partial Exemption and Input Tax Recovery”.